Once you are in Making Tax Digital for Income Tax, late payment penalties no longer come as 5% charges at 30 days, 6 months and 12 months. For the 2026 to 2027 tax year there is no penalty if you pay within 15 days, a 3% charge on whatever is unpaid at day 15, a second 3% charge on whatever is still unpaid at day 30, and then a daily charge at an annual rate of 10% from day 31. In your first year under the new rules the 15 day window is extended to 30 days.

Where do the new late payment penalties come from?

The rules are in Schedule 26 to the Finance Act 2021, the same penalty code that already applies to VAT. HMRC says the new penalties replace the current late payment and late submission penalties on your personal tax return from the tax year you join Making Tax Digital for Income Tax. Earlier years stay under the old rules: if you started on 6 April 2026, the 2025 to 2026 return and payment due on 31 January 2027 are still dealt with under the existing Self Assessment penalties, explained in more detail in our page on Self Assessment late payment penalties.

The new penalties do not apply to partnership returns made by a nominated partner, trust or estate returns made by a trustee, or returns made for a non resident company. HMRC also says that from April 2027 the new penalties will apply to everyone who submits a personal Self Assessment return, whether or not they use Making Tax Digital.

Which payments can attract a penalty?

HMRC lists two kinds of payment that are caught when they are not paid in full by the due date:

  • the balancing payment of tax still owing for the year, due on 31 January after the end of the tax year;
  • amounts that become due after an amendment to your return or an assessment by HMRC.

Payments on account are not penalised. Each late payment is treated on its own and the late payment regime is not points based, unlike the separate penalty points system for late submissions. Late payment interest still runs from the first day a payment is late until it is paid in full, and HMRC says there is no change to how interest works. Interest is set at Bank of England base rate plus 4% (see HMRC late payment interest), and it is charged on top of any penalty.

How is the penalty worked out at 15 and 30 days?

Paragraph 10 of Schedule 26 defines the 15 day period and the 30 day period as periods beginning with the day after the date the tax was due. Paragraph 4 says no penalty is payable if the tax is paid in full before the end of the 15 day period. If it is not, paragraph 5 charges a first penalty made up of two parts:

  • Amount A: a percentage of the tax still unpaid at the end of the 15 day period.
  • Amount B: a percentage of the tax still unpaid at the end of the 30 day period, added only if some tax is still outstanding then.

Both percentages are 3%. They were raised from the original 2% by the Finance Act 2021 (Increase in Schedule 26 Penalty Percentages) Regulations 2025 with effect from 31 May 2025. HMRC’s guidance shows higher figures for the 2027 to 2028 tax year:

How late the payment is Tax year 2026 to 2027 Tax year 2027 to 2028
Up to 15 days No penalty No penalty
16 to 30 days 3% of the tax owed at day 15 (none in your first year) 4% of the tax owed at day 15 (none in your first year)
31 days or more 3% at day 15, 3% at day 30, plus 10% a year charged daily from day 31 4% at day 15, 4% at day 30, plus 10% a year charged daily from day 31

Because each part is measured on what is unpaid at that point, paying part of the bill before day 15 or day 30 reduces the penalty even if you cannot clear it all.

What is the daily penalty after day 30?

Paragraph 8 adds a second penalty if any of the tax is still unpaid at the end of the 30 day period. It is calculated by applying a penalty rate of 10% a year to the amount outstanding from time to time, from the day after the 30 day period ends until the tax is paid in full. HMRC’s guidance says this daily charge runs until the tax is paid or for up to 2 years. Paragraph 16 allows HMRC to assess the penalty and to make regulations letting it assess the second penalty at intervals before the debt is cleared. Any penalty must be paid within 30 days of the day the notice is issued.

How does the first year concession work?

In your first year under the new penalties you have 30 days from the due date, rather than 15, to pay in full or contact HMRC to set up a payment plan. HMRC only starts applying penalties after those 30 days. From the second year onwards the window is back to 15 days.

The longer window is only given once. HMRC says that if you volunteered for Making Tax Digital and are later required to use it, you keep the 15 day window, because your first year was the year you volunteered. The rules for volunteers are covered in joining MTD for Income Tax voluntarily.

Can a payment plan stop the penalties?

Yes, if you act early. Paragraph 6 of Schedule 26 sets out two time to pay conditions:

  • The 15 day condition is met if a time to pay agreement results from proposals you make before the end of the 15 day period. No penalty is charged at all.
  • The 30 day condition is met if the agreement results from proposals made after day 15 but before the end of the 30 day period. Amount A is charged, but amount B is not.

The daily second penalty stops running from the day you made the proposals that led to the agreement. HMRC’s guidance puts it simply: if a payment plan is agreed and you keep to it, penalties are paused from the date you contacted HMRC. The agreement date can be later than the day you asked, as long as the proposals were made in time. If you break the agreement, paragraphs 7 and 9 allow HMRC to charge the penalties as if the agreement had never existed. See HMRC Time to Pay arrangements for how plans are set up.

How much could a late payment cost?

Illustration only. Sam has been in Making Tax Digital since April 2026, so 2027 to 2028 is not his first year under the new penalties. His balancing payment of £10,000 for 2027 to 2028 is due on 31 January 2029. Using the rates HMRC has published for that year:

  • He pays £4,000 on 10 February 2029, inside the 15 day period. £6,000 is unpaid at the end of day 15, so amount A is 4% of £6,000, which is £240.
  • Nothing more is paid by the end of day 30, so amount B is a further 4% of £6,000, another £240.
  • He clears the £6,000 sixty days after the 30 day period ends. The second penalty is £6,000 at 10% a year for 60 days, about £99.

His penalties total about £579, and late payment interest is charged on the whole period on top. Had Sam phoned HMRC and proposed a payment plan on 5 February, before day 15, and kept to it, he would have had no penalty, only interest.

Can you appeal or get a penalty reduced?

HMRC sends a letter for each late payment penalty, and the letter explains how to appeal. Paragraph 19 gives the right of appeal, and paragraph 12 removes liability if you had a reasonable excuse. The statutory limits are strict: a shortage of money is not an excuse unless it is caused by events outside your control, and relying on someone else, such as an adviser, only counts if you took reasonable care to avoid the failure. Paragraph 13 also lets HMRC reduce a penalty because of special circumstances, and HMRC says that in exceptional cases, such as insolvency, it may cancel a penalty.

What mistakes lead to avoidable penalties?

  • Assuming the old 30 day breathing space still applies. After your first year the first charge arises at day 16, not day 31.
  • Waiting to contact HMRC. A payment plan proposed before day 15 avoids all penalties; one proposed after day 30 does not undo the first penalty.
  • Paying nothing because you cannot pay everything. Each charge is worked out on the amount unpaid at that point, so part payments help.
  • Confusing interest with penalties. A reasonable excuse can remove a penalty, but interest still runs.
  • Breaking a payment plan, which can revive penalties that had been avoided.
  • Forgetting that an amendment or assessment creates a new due date and can attract its own penalty if not paid on time.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.