LITRG: Penalty changes announced today are good news for both Making Tax Digital and Self Assessment taxpayers, says LITRG

26 Nov 2025

LITRG welcomes today’s announcement that taxpayers who are required to take part in Making Tax Digital (MTD) for Income Tax from next April will not be charged penalty points if they fail to submit any of their compulsory quarterly updates of income and expenses late during the first 12 months.

Today’s announcement1 also confirms that the new penalty regime2 introduced alongside MTD will be extended to self assessment taxpayers from April 2027. 

Sharron West, Technical officer at LITRG, said: 

“We’re pleased to see the government defer penalties for the first year of Making Tax Digital.  

“Making Tax Digital is the biggest change to the tax system since self assessment and because of that, we expect that there will be some teething problems when it goes live in April.  

“This period of grace is especially good news for those who will be getting used to the new system without the help of a tax adviser.” 

“The penalty regime which applies to those in Making Tax Digital is generally considered to be a simpler and fairer one than is used for self assessment. That is because taxpayers are not automatically fined for occasional accidental mistakes.  

“Even then, deferring these penalties for a year takes worry away from taxpayers who may be struggling to understand the new requirements or to get to grips with the commercial software they now need to use, many for the first time.  

On the extension of the penalty regime to taxpayers in self assessment from April 2027, Sharron West continued: 

“It is unfair for two different penalty regimes to be operating side by side, especially when one is arguably harsher than the other. 

“Last year LITRG’s report3 called for the new penalty regime to be applied to all taxpayers as soon as possible, so we are delighted that the government has taken this on board.” 

Notes for editors 

  1. See Budget 2025 Report, para 4.158: Penalty reform: Updates to the penalty regime for Self Assessment and VAT – The government will not apply late submission penalties for quarterly updates during the 2026-27 tax year for Income Tax Self Assessment (ITSA) taxpayers required to join Making Tax Digital (MTD). The government will apply the new penalty regime for late submission and late payment to all ITSA taxpayers not already due to join the new system from 6 April 2027. This will be legislated for via secondary legislation. The government will increase the penalties due for late payment of ITSA and VAT from 1 April 2027. This will be legislated for via secondary legislation. 
  2. For more information on the new penalty regime see Making Tax Digital: technical publications - GOV.UK 
  3. See LITRG Report: Self assessment late filing penalties: improving fairness for unrepresented taxpayers and press release