Two Penalty Regimes, One January: Which Rules Apply

The Deadline Everyone Knows, With Rules That Moved Underneath It

Ask a UK practice owner what has dominated 2026 and you will hear about quarterly updates, Companies House reform and AML supervision. Almost nobody names penalties. Yet the 31st of January 2027 deadline is the first Self Assessment season in which two entirely separate penalty regimes apply to your client base at the same time, and the dividing line is not where most firms assume it is.

Get it wrong and you will either frighten clients with rules that do not apply to them yet, or reassure clients who are about to be charged under rules you have not mentioned. Neither is a good look in February.

Why January 31st 2027 Is Not a Normal Filing Deadline

The new Finance Act 2021 penalty regime, the points based system for late submissions and the percentage based system for late payments, does not switch on for everyone at once. HMRC guidance is explicit: the new penalties apply from the tax year in which a taxpayer joins Making Tax Digital for Income Tax.

That produces a result many firms have not registered. A client mandated into MTD from the 6th of April 2026 is filing a 2025 to 2026 return on the 31st of January 2027. That is a pre MTD year, so the current penalty regime still governs it. Their new style penalties begin with the 2026 to 2027 return, due 31 January 2028.

Meanwhile, clients who volunteered into MTD or joined HMRC's testing phase earlier are already inside the new regime for the year they joined. Same deadline, same January, different rules.

Which Regime Applies to Which Client

• Current regime for the 2025 to 2026 return: the large majority of your Self Assessment clients, including those mandated into MTD from April 2026, plus trust, estate, partnership and non resident company returns, which stay on the current rules regardless.
• New regime for the 2025 to 2026 return: clients who voluntarily joined MTD for Income Tax for 2025 to 2026, or who were part of HMRC's testing phase for that year.
• Everyone from 2027 to 2028 onwards: the new penalties become universal for personal Self Assessment returns, with a two point threshold for annual filers and four points for those filing quarterly updates.

This is a data question before it is a tax question. If your practice cannot produce a list of which clients volunteered into MTD, which were mandated, and which are still outside it, that list is the single most useful thing you can build this month.

The Current Regime Still Does the Heavy Lifting

For most clients this January, the familiar figures apply. A late return attracts an immediate £100 fixed penalty even where no tax is due, then daily penalties of £10 for up to 90 days after three months, then a penalty of 5% of the tax due or £300, whichever is greater, at six months, and a further charge at twelve months. Late payment brings 5% surcharges on tax still unpaid 30 days, five months and eleven months after the penalty date.

The practical point for client conversations is blunt: under the current rules there is no 15 day grace period on payment. The surcharge clock is set by the 30 day mark, and interest runs from the original due date.

What the New Regime Looks Like for Clients Already Inside It

For the smaller group under the new late payment rules, the shape is different and much more forgiving at the front end, then much sharper later.

• Up to 15 days late: no penalty if the tax is paid in full or a payment plan is agreed in that window.
• 16 to 30 days late: a first penalty of 3% of the tax unpaid at day 15 for the 2026 to 2027 year, rising to 4% for 2027 to 2028.
• 31 days or more: that first penalty plus a further 3% of the tax unpaid at day 30, rising to 4%, plus an annual rate of 10% charged daily on the outstanding balance until paid, for up to two years.
• First year concession: in a taxpayer's first year under the new penalties, the window to pay or agree a plan is 30 days rather than 15. It is available once only.

Two details are worth flagging to clients in writing. Late payment penalties under the new regime do not apply to payments on account, although interest still does. And there are no penalties for missing a quarterly update deadline for the 2026 to 2027 tax year under HMRC's soft landing, but that concession covers quarterly updates only. It does not cover the annual return, digital record keeping, or late payment.

Interest Is the Quiet Cost Nobody Budgets For

Penalties generate the complaints, interest generates the cost. HMRC's late payment interest rate has been 7.75% since 9 January 2026, set at Bank Rate plus four percentage points, with repayment interest at 2.75%. With Bank Rate at 3.75%, a client who pays a £20,000 liability three months late is carrying roughly £390 of interest before any penalty is considered.

That asymmetry between 7.75% charged and 2.75% repaid is a genuinely useful advisory message. Overpaying HMRC is poor treasury management, underpaying is worse, and getting payments on account right sits in between. Rates are reviewed after Bank Rate moves, with the next Monetary Policy Committee decision due on the 5th of November 2026, and the Autumn Budget on the 28th of October 2026 may touch the regime again. Build your client letters so the rate is a variable, not a hard coded number.

A Four Step Plan for October to January

• Segment the client list now. Tag every Self Assessment client as current regime or new regime for the 2025 to 2026 return. Record the tax year each client joined MTD, because that date determines their penalty position for years to come.
• Forecast liabilities early, not in January. Clients who know their January 31st figure in November have time to find the cash. Clients who learn it on the 28th of January have time only to panic.
• Pre qualify the clients who will struggle. HMRC's online payment plan service covers Self Assessment debts up to £30,000, subject to eligibility checks, and the return must be filed first. Larger or more complex debts need a conversation with HMRC. Under the new regime, agreeing a plan within the penalty window pauses penalties from the date of contact, so timing is worth real money.
• Point cash positive clients at a Budget Payment Plan. For clients who are up to date, weekly or monthly payments towards the next bill remove the January cliff edge entirely.

What to Say to Clients This Month

Keep the message short and specific to each segment. For current regime clients: your deadline rules have not changed, the £100 penalty is automatic, and surcharges start 30 days after the due date. For new regime clients: you have a short window to pay or agree a plan before penalties begin, and this year that window is 30 days rather than 15. For every client: interest at 7.75% starts on day one, so a payment plan agreed early is always cheaper than silence.

Firms that send two clearly segmented emails in October will field far fewer calls in February than firms that send one generic one in January.

Make the Practice Data Do the Work

All of this depends on knowing, client by client, which regime applies, what is owed, what has been filed and who has been contacted. That is a practice management problem rather than a tax technical one. Centralised client records, deadline tracking across returns and payments, and documented communications are what turn a two regime January from a risk into a routine. With TaxCalc, your client data, tax returns, deadlines and tasks sit in one place, so segmenting a client base by MTD status and chasing payment conversations is a reporting job rather than a spreadsheet rebuild.

The January 31st 2027 deadline will arrive whatever the Budget does on the 28th of October. The firms that come through it cleanly will be the ones that worked out, in October, exactly which rules apply to whom.