The MTD Soft Landing: What Penalties Apply in Your First Year
Last updated: February 2026
When HMRC announced the Making Tax Digital for Income Tax Self Assessment (MTD ITSA) launch date of 6 April 2026, they also confirmed a soft landing period for the first year. This has been widely welcomed, but it has also been widely misunderstood. The soft landing does not mean a penalty-free year. It means one specific type of penalty is suspended for a limited time, while other penalties apply from day one.
Understanding exactly what the soft landing covers, and what it does not, is essential for anyone entering MTD in April 2026. Getting this wrong could mean an unexpected bill in your first year.
What the soft landing actually covers
The soft landing applies to penalty points for late quarterly updates during the 2026/27 tax year only. Under the new points-based penalty system, each late quarterly update normally adds one penalty point to your record. Once you reach four points, you receive a £200 fine, and every subsequent late submission triggers another £200.
During the 2026/27 tax year, HMRC will not issue penalty points for late quarterly updates. This means that if you miss one, two, three, or all four of your quarterly submission deadlines in your first year, you will not accumulate any points. Your penalty point total will remain at zero when the 2027/28 tax year begins.
This applies to Phase 1 taxpayers joining MTD from April 2026, those with qualifying income above £50,000.
What the soft landing does not cover
The soft landing is narrow. It suspends penalty points for quarterly updates and nothing else. Several other types of penalty and charge still apply in full during 2026/27.
Late Final Declaration
The Final Declaration, due by 31 January 2028 for the 2026/27 tax year, is not covered by the soft landing. If you submit your Final Declaration late, penalty points will be applied under the same points-based system. The soft landing protects quarterly updates only.
Late payment penalties
If you owe tax and do not pay on time, late payment penalties apply from year one. HMRC has introduced a slightly extended grace period: late payment charges begin after 30 days past the due date, rather than immediately. After 30 days, a first penalty of 2% of the outstanding tax is charged. If the debt remains unpaid after a further 30 days (60 days total), an additional 2% is added. From day 30 onwards, a daily penalty also accrues at an annualised rate of 4% of the outstanding balance.
These charges apply throughout the soft landing period. Paying late costs money from April 2026 onwards, regardless of the soft landing.
Interest on late payments
Interest is charged from the original due date on any tax paid late. This is not a penalty as such, but it adds to your bill. The soft landing has no effect on interest charges. HMRC’s late payment interest rate is linked to the Bank of England base rate plus 2.5 percentage points, and it accrues daily from the date the payment was due until the date it is received.
Who gets the soft landing
The soft landing applies to Phase 1 taxpayers: those with qualifying income above £50,000 who join MTD ITSA from 6 April 2026. Qualifying income means total gross income from self-employment and UK property combined, before expenses are deducted.
HMRC has not confirmed whether Phase 2 taxpayers (qualifying income above £30,000, joining from April 2027) or Phase 3 taxpayers (qualifying income of £20,000 or more, joining from April 2028) will receive their own soft landing periods. As of February 2026, there is no official announcement either way. It would be unwise to assume a separate soft landing will be offered to later phases.
Common misconceptions
The soft landing has generated a number of myths. Here are the most common, along with the facts.
“I can submit late with no consequences in 2026/27”
This is false. While you will not receive penalty points for late quarterly updates, late payment penalties and interest still apply. If you owe tax and miss the payment deadline by more than 30 days, you will be charged. The soft landing protects you from points on your quarterly submissions, not from the financial consequences of paying late.
“The soft landing lasts for two years”
Also false. The soft landing covers one tax year only: 2026/27. From 6 April 2027 onwards, penalty points will be issued for every late quarterly update. If you developed a habit of submitting late during the soft landing, that habit becomes expensive very quickly in year two.
“Phase 2 taxpayers will get their own soft landing”
This is unconfirmed. HMRC may choose to extend a similar concession to Phase 2 taxpayers joining in April 2027, but this has not been announced. Planning on the assumption that a soft landing will be available is a risk. If you fall into Phase 2, the safest approach is to prepare as though penalties will apply from your first quarterly update.
Worked example: how the soft landing plays out
David is a self-employed IT contractor with gross annual income of £62,000. He falls into Phase 1 and must begin MTD quarterly reporting from 6 April 2026.
Year 1: 2026/27 (soft landing applies)
David is slow to get set up with his software. He misses the Q1 deadline of 7 August 2026 and the Q2 deadline of 7 November 2026. He catches up and submits both updates in December 2026, then files Q3 and Q4 on time.
Under normal rules, David would have two penalty points on his record. Under the soft landing, he receives zero points. His record starts the 2027/28 year clean.
However, David also paid his January 2027 payment on account 45 days late. The late payment penalty applies: 2% of the outstanding tax after 30 days, plus a daily charge from day 30 to day 45. The soft landing does not protect him from this.
Year 2: 2027/28 (no soft landing)
David assumes quarterly reporting will be relaxed again. He misses the Q1 deadline of 7 August 2027. This time, he receives one penalty point. He misses Q2 as well: that is two points. If he continues the pattern from year one and misses two more deadlines, he will hit four points and trigger a £200 fine, with £200 for every subsequent late filing after that.
The lesson is clear. The soft landing is a one-off adjustment period, not an ongoing concession. The habits you build in year one will determine whether year two runs smoothly or becomes expensive.
How to use the soft landing wisely
Rather than treating the soft landing as permission to delay, treat it as a practice run. Use 2026/27 to:
- Set up your MTD-compatible software and learn how it works
- Establish a quarterly routine for reviewing and submitting your records
- Identify any gaps in your record-keeping before penalties start applying
- Work with your accountant to test the submission process end to end
If you treat year one as a dress rehearsal, year two becomes straightforward. If you treat year one as a holiday from compliance, year two becomes a scramble.
The penalty points system after the soft landing
From 2027/28 onwards, the full points-based penalty regime applies. Each late quarterly update adds one point. At four points, a £200 penalty is issued. Every further late submission after reaching the threshold triggers another £200.
Points can be reset to zero, but only if you file all submissions on time for a continuous 24-month period after reaching the threshold. That is a long road back. It is far easier to avoid accumulating points in the first place by building reliable submission habits during the soft landing year.
What to do now
If you are a sole trader or landlord with qualifying income above £50,000, the soft landing gives you breathing room on quarterly submission deadlines in 2026/27, but nothing more. Payment deadlines carry real financial consequences from day one. Use the first year to get your processes right, not to delay getting started.
For a full overview of MTD obligations and deadlines, see our MTD Income Tax guide.
Need help preparing for MTD?
Jack Ross Chartered Accountants can handle your MTD registration, software setup, and quarterly submissions so you are ready before April 2026. Our Xero team specialises in cloud accounting for sole traders and landlords. Get in touch to discuss your needs.
