Questions and Answers
Making Tax Digital – what do I need to know about paying tax, penalties and fines?
I expect to join Making Tax Digital (MTD) for income tax next year, based on my current income. How will things change compared to self-assessment when it comes to paying my tax bill and the penalties and fines if I get things wrong?
First published 29 Jun 2026
By Helen Wood, CA 2 min read
Making Tax Digital
Paying my tax under MTD for income tax
Do I need to pay tax quarterly now?
No, you don’t need to pay tax quarterly. Income tax is still due either:
- on 31st January annually or
- via payments on account on 31st January and 31st July each year depending on your circumstances.
The quarterly updates are reports of your income and expenses only and do not affect the payment of tax.
Does MTD for income tax affect payments on account?
No, MTD for income tax does not affect the rules on:
- the payment of tax or
- payments on account.
If you make payments on account now you will continue to do so if you still meet the criteria. The criteria are:
- you owe more than £1,000 in tax and
- have less than 80% of your income tax collected at source i.e. through PAYE or deducted from interest receipts.
Do I pay tax via the MTD tax return or via the usual self-assessment return?
Once you are within the MTD for income tax regime, you will file four quarterly updated and an end of year tax return through your MTD software, but tax is paid by the same deadline and in the same way as you currently pay it under self-assessment.
However, once you are within MTD for income tax you will no longer file a self-assessment tax return – the MTD for income tax end of year tax return replaces the self-assessment tax return for those within MTD.
As a sole trader will I still need to pay tax twice a year in January and July?
If you currently make payments on account, you should carry on doing so as long as you meet the criteria to do so. The payments on account rules will not change under MTD for income tax.
Penalties and fines
Is the new points system just for those under MTD for income tax? If I am still filing a self-assessment tax return and I am late, will I still have the initial £100 penalty?
The points system for penalties is also going to be introduced for self-assessment tax returns from the 2027/28 tax year. See our article explaining this here. For the 2026/27 tax year and earlier, the £100 penalty for a late tax return still applies.
Need help understanding Making Tax Digital?
Contact TaxAssist Accountants for a free, no-obligation consultation to get a fixed fee quote
Or contact usFrequently Asked Questions
When looking at Making Tax Digital for Income Tax the following thresholds apply:
- From 6th April 2026 if you have an annual business or property income of more than £50,000.
- From 6th April 2027 if you have an annual business or property income of more than £30,000.
- From 6th April 2028 if you have an annual business or property income of more than £20,000.
You need software that is recognised by HMRC as compatible with Making Tax Digital (MTD) for income tax. HMRC maintains an up-to-date list of compatible software products on GOV.UK, including a personalised software finder tool. Compatible software must be able to create and store digital records of your income and expenses, submit quarterly updates directly to HMRC, and support your end of year tax return submission. Bridging software is also available if you prefer to continue using spreadsheets. It connects your existing records to HMRC's systems. A TaxAssist Accountant can help you choose the right solution for your business.
First published 29 Jun 2026
This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.
Helen Wood, CA
Helen is a qualified chartered accountant (CA) and joined TaxAssist in 2025 following three years as a freelance content writer for clients in the tax and accounting publishing sector. Prior to this, She spent 17 years at Big Four and Top 10 accountancy firms. Helen writes clear and helpful articles on tax and accounting for businesses and individuals.
Choose the right accounting firm for you
Running your own business can be challenging so why not let TaxAssist Accountants manage your tax, accounting, bookkeeping and payroll needs? If you are not receiving the service you deserve from your accountant, then perhaps it’s time to make the switch?
Local business focus
We specialise in supporting independent businesses and work with 100,000 clients. Each TaxAssist Accountant runs their own business, and are passionate about supporting you.
Come and meet us
We enjoy talking to business owners and self-employed professionals who are looking to get the most out of their accountant. You can visit us at any of our 390 locations, meet with us online through video call software, or talk to us by telephone.
Switching is simple
Changing accountants is easier than you might think. There are no tax implications and you can switch at any time in the year and our team will guide you through the process for a smooth transition.