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".
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:
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.
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.
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:
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.
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.
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.
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.
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.