The Deadline Everyone Has Diarised, Under Rules Almost Nobody Has Checked
Ask a UK practice owner what January 2027 holds and you will hear the familiar answer: a wall of returns, a queue of late records, and a fortnight of long evenings. What you are less likely to hear is a clear account of which penalty regime those returns actually sit under.
That matters more than usual this year. Since the 6th of April 2026, a large tranche of sole traders and landlords has been inside Making Tax Digital for Income Tax. Many of those clients now assume that everything about their tax life has changed, including the penalties. It has not. The return they are about to file is a 2025/26 return, and it falls under the old Self Assessment penalty rules. The new penalties attach to the first tax year in which the client joined MTD, so for most of that first tranche they apply to 2026/27 and only become real money on the 31st of January 2028.
In other words, your firm is about to run a filing season in which two penalty regimes operate in parallel, on the same clients, in the same software, in the same month. Getting the explanation right protects your clients and, just as importantly, protects your firm from complaints that start with the words "but you told me".
Why Two Regimes Are Running at Once
HMRC has confirmed that the new late submission and late payment penalties replace the current Self Assessment penalties from the tax year the taxpayer joins MTD for Income Tax. The practical consequences are simple once you see them written down:
- 2025/26 return, due January 31st 2027: old Self Assessment penalties, even if the client has been filing quarterly updates since last April.
- 2026/27 return, due January 31st 2028: new points based late submission penalties and new percentage based late payment penalties.
- Quarterly updates for 2026/27: no late submission penalties at all, although the updates are still mandatory and the return cannot be filed without them.
- Quarterly updates for 2027/28 onwards: each missed deadline earns a penalty point.
There is one more wrinkle worth noting. The new penalties do not apply to trust and estate returns, partnership returns filed by a nominated partner, or non resident company returns. Those stay under the existing rules, so mixed client groups will see different outcomes from the same filing deadline.
What January 31st 2027 Looks Like Under the Old Rules
For the 2025/26 cycle, the familiar ladder still applies. A return filed even a day late attracts an immediate £100 penalty regardless of whether tax is owed. At three months, daily penalties of £10 start to run for up to ninety days, a maximum of £900. At six months a further penalty of 5 per cent of the tax due or £300, whichever is greater, is charged, and the same again at twelve months.
On the payment side, unpaid tax attracts 5% at thirty days, 5% at six months and 5% at twelve months, with late payment interest running from the due date at the statutory rate, currently set by reference to the Bank of England base rate plus four percentage points. Interest is not a penalty and it cannot be appealed away, which is why it quietly does more damage to client relationships than the headline fines.
What Changes When the New Regime Bites
From the client's first MTD year, the shape of the risk changes. Late submission penalties become points based. Each missed quarterly update or return deadline earns one point, the threshold is four points, and reaching it triggers a £200 penalty, with a further £200 for every subsequent miss. Only one point can be earned per deadline, so a client with three businesses who files three late updates for the same quarter still collects a single point. Income tax points are also kept separate from VAT points.
Late payment penalties become sharper and faster. For 2026/27 the structure is:
- Up to 15 days late: no penalty.
- 16 to 30 days late: 3% of the tax owed at day 15.
- 31 days or more: 3% of the tax owed at day 15, plus 3% of what is still owed at day 30, plus an annual rate of 10% charged daily from day 31 until the tax is paid, for up to two years.
For 2027/28 the two fixed charges rise from 3% to 4%. Compared with the old 5% at thirty days, the new regime is gentler on the genuinely prompt and considerably more expensive on the chronically slow.
Three Nuances That Will Catch Firms Out
The thirty day grace period is a one time concession. In a client's first year under the new penalties, they have thirty days from the due date to pay in full or agree a payment plan before penalties start, after which the window drops to fifteen days. Clients who volunteered into MTD early have already used that allowance and get fifteen days only. If your firm pushed a cohort of clients into voluntary signup to smooth capacity, check where each one sits before you promise anyone a month of breathing space.
Payments on account sit outside the late payment penalties. The new penalties apply to balancing payments and to amounts due following an amendment or assessment, not to payments on account. That is not a licence to pay late. Interest still runs from the due date, and an unpaid July instalment still rolls into a larger January problem.
Points do not always expire quietly. Below the four point threshold, each point drops off automatically twenty four months after the missed deadline. Once a client hits the threshold, nothing expires automatically. They must file everything on time for twelve months and clear any outstanding updates and returns from the previous twenty four months before the slate is wiped. Serial late filers can therefore carry a £200 charge on every deadline for well over a year.
From April 2027, This Stops Being an MTD Story
There is a strategic point hiding in HMRC's guidance that deserves more attention than it has had. From April 2027 the new penalties apply to everyone who files a personal Self Assessment return, not only those inside MTD. Taxpayers outside MTD will face a lower two point threshold, and anyone who becomes exempt after 2026/27 stays under the new rules with that lower threshold, with existing points scaled so they are no closer to it than before.
So the two regime problem is temporary, but the direction is permanent. Within eighteen months, every return your firm files will sit under points and percentages. Teaching clients the new vocabulary now, while the stakes are still low, is cheaper than teaching it in a year when it costs them money.
A Practical Plan for the Next Sixteen Weeks
- Clear the November 7th quarterly update first. No penalty applies for a late update this year, but an unsubmitted quarter blocks the eventual return and hides exactly the data problems you want to find before January.
- Segment your client list by regime. Flag which clients are in MTD, which tax year their first MTD period is, and whether they volunteered early. One field in your practice database now saves fifty awkward phone calls later.
- Rewrite the January reminder email. One paragraph confirming that 2025/26 still carries the £100 fixed penalty and 5 per cent payment charges, and one confirming what changes for 2026/27, prevents the most common misunderstanding of the season.
- Identify payment risk early, not on the 30th of January. Clients heading for trouble should be talking to HMRC about a payment plan before the due date, because penalties are paused from the date contact is made when a plan is agreed and kept.
- Model the first POA shock. Clients whose 2025/26 profits rose will face a balancing payment plus a larger instalment. Give them the number in October, not in late January.
- Update engagement terms and your late records policy. Under a points regime, a client who supplies records late is no longer just inconvenient, they are creating a quantifiable liability that someone has to own.
- Check your audit trail. Appeals rest on evidence of when a submission was made and when records were received. Make sure that evidence lives in your system, not in someone's inbox.
Where Software Takes the Strain
None of this is intellectually difficult. It is simply a tracking problem across hundreds of clients, two regimes, four quarterly deadlines and one immovable January date. That is exactly the work that should sit in your systems rather than in your team's heads. A single view of client obligations, automated deadline tracking, recorded chase history, and a clean link between records received and submissions made turns a confusing season into a managed one. TaxCalc customers can run their quarterly updates, tax returns and client communications from one place, so the regime each client sits under is a data field rather than a conversation.
The Bottom Line
January 2027 is not harder than previous seasons because the rules are harsher. It is harder because the rules are split, and clients will assume otherwise. Firms that spend an hour now segmenting their list and rewriting their reminders will spend that season answering questions about tax, not about penalties. Firms that do not will find out which of their clients read the headlines and drew their own conclusions.
