What Happens If You’re Not Compliant With Making Tax Digital?
From April 6th 2026, Making Tax Digital for Income Tax will extend to more businesses and landlords. Sole traders and landlords with gross income above £50,000 will need to keep digital records and submit regular updates to HMRC under MTDfIT. From April 2027, the threshold will decrease to £30,000, bringing even more people within scope.
These changes mean compliance will become more important than ever. Reporting will occur more frequently, deadlines will be closer together, and HMRC will expect records to be accurate throughout the year, not just at year’s end.
Staying compliant with HMRC rules is not just about meeting one deadline. It involves maintaining accurate records, submitting information promptly, and ensuring your figures are correct. When these are not adhered to, penalties, interest charges, and extra checks can ensue.
Here is what can happen if you are not compliant with Making Tax Digital.
Late Filing Penalties
HMRC imposes penalties when returns or required submissions are late.
Under the newer system used for Making Tax Digital and other filings, HMRC employs a points-based penalty system.
Each missed deadline results in a penalty point being added. Once the points reach a set limit, a fine is issued. These points do not disappear immediately; you must remain compliant for a period before they are removed. With more frequent reporting under MTD, there are increased opportunities to miss deadlines, which can cause penalties to accumulate more quickly than before.
Late Payment Penalties
Filing on time does not eliminate the need to pay by the due date.
If tax is paid late, HMRC may impose penalties based on how long the payment remains overdue. These penalties increase the longer the balance stays unpaid.
Late payment charges can apply to:
- Income Tax
- VAT
- PAYE
- Payments on account
Late payments often occur when records are unclear or figures are hurried. Accurate bookkeeping helps prevent this.
Interest Charges on Unpaid Tax
In addition to penalties, HMRC charges interest on unpaid tax.
Interest is calculated daily, so the longer a balance remains unpaid, the more it costs.
Even small delays can create unnecessary costs, especially with payments on account or quarterly obligations. Interest is applied automatically when payments are late.
The MTD Points-Based System Increases the Risk
Making Tax Digital transforms compliance procedures.
Instead of submitting a single annual return, eligible businesses must provide updates more frequently — four quarterly reports and one final declaration. This leads to more deadlines, more submissions, and a greater chance of errors.
Under the MTD points system:
- Each late submission incurs a point
- Points remain on your record
- Fines are imposed once the limit is reached
This approach emphasises the importance of consistent bookkeeping more than ever. Leaving records until the last minute significantly raises the risk of missing deadlines.
Extra HMRC Checks and Enquiries
Poor or inconsistent records can attract extra scrutiny from HMRC.
This may involve:
- Requests for additional information
- Reviews of previous submissions
- Compliance checks
- Enquiries into the figures provided
Most investigations begin because something appears amiss—such as missing transactions, significant profit fluctuations, or repeated late submissions—all of which can raise questions. Maintaining accurate bookkeeping diminishes the likelihood of this happening.
Why Poor Records Increase the Risk
Most compliance issues start with disorganised records.
Common problems include:
- Missing receipts
- Unreconciled bank accounts
- Mixing personal and business expenses
- Updating records only once a year, and incorrectly
When records are incomplete, meeting deadlines and trusting figures become more difficult.
Under Making Tax Digital, this risk increases as information is submitted more regularly and errors are more likely to happen.
How Rosemary Bookkeeping Can Help
Staying compliant doesn’t mean doing everything yourself. It means keeping records that are accurate, organised, and ready when required.
Your local Rosemary Bookkeeper can assist you:
- Keep records up to date
- Meet HMRC deadlines
- Prepare for Making Tax Digital
- Reduce the risk of penalties and interest
Good bookkeeping isn’t just about avoiding fines. It provides you with confidence that your figures are accurate.
Remember, if you are not compliant with Making Tax Digital, you’ll receive penalty points and fines. To ensure this doesn’t happen, find your nearest Rosemary Bookkeeper today.
