MTD Penalty Regime Delayed for Landlords & Self-Employed Until April 2027

For landlords and sole traders, yesterday's Budget had a mixture of good and bad news.

On the good news front, landlords and self employed caught by phase one of the Making Tax Digital (MTD) for Income Tax rules will not have to pay penalties on any late filing of the quarterly updates in 2026-27.

This means that landlords and sole traders with gross rents and turnover in excess of £50,000 will not be liable for new penalty regime under MTD until April 2027.

The new MTD penalty system is based on a points-based regime and will penalise those who persistently miss filing and payment deadlines, while being more lenient on those who occasionally fail to meet some obligations.

Under the new MTD penalty regime, when a taxpayer misses an annual submission deadline, they will incur a penalty point. A taxpayer becomes liable to a fixed financial penalty of £200 only after they have reached the points threshold of two for late submission of their final declaration.

On the bad news front, embattled landlords will see their rental profits taxed at a new basic rate of 22%, a higher rate of 42% or an additional rate of 47%. That tax rise, on top of the forthcoming Renters Rights bill and the significant additional costs of MTD will probably see an exodus of landlords from the rental sector.

Confused by MTD deadlines, penalties, or tax changes? Contact us today for personalised Making Tax Digital (MTD) guidance and peace of mind.