Costs will differ from business to business and are influenced by factors including size and complexity of the business, degree of digital capability and cost and functionality of chosen software.

HMRC has published assessment of the potential impact of MTD for Income Tax on taxpayers joining from April 2028, and it is available at:

www.gov.uk/government/publications/making-tax-digital-for-income-tax-self-assessment-reducing-the-mandation-threshold-from-30000-to-20000-from-april-2028/reduction-of-the-mandation-threshold-from-30000-to-20000-from-april-2028

The government is undertaking a range of activities to ensure those needing to use Making Tax Digital (MTD) for Income Tax from April 2026 are ready and able to do so successfully.

This includes media campaigns, awareness letters, developing guidance, and working with the software industry to ensure a broad range of MTD‑compatible products is available, including free options.

MTD quarterly updates are not like making a tax return each quarter. Software will manage much of the process, creating simple summaries of income and expenses from the taxpayer’s digital records ready for submission.

Information provided within the quarterly updates will be carried forward to the tax return, helping to reduce errors and make the end of year process faster and easier.

The government has reformed penalties and at Budget 2025 confirmed the introduction of a new penalty regime for late filing of SA returns and late payment of income tax that will now apply to all SA customers from April 2027. This reform of late filing penalties will reduce the penalties a customer can accumulate for filing late and will introduce a further safeguard so people will not receive a financial penalty for a single failure to file on time.

HMRC also has dedicated support in place for those facing personal difficulties and encourages anyone struggling to meet their obligations to make contact as soon as possible by phone or online.

This includes:

• HMRC’s Extra Support Team provides support to customers with their tax affairs if they have a health condition or their personal circumstances make it difficult for them to contact HMRC.
• Where customers are struggling to pay their tax on time, they may be able to set up a payment plan online or a Budget Payment Plan instead

The tax system contains obligations, set out in law, to ensure that HMRC can collect the correct tax to fund vital public services. HMRC is bound by law to apply penalties where customers do not meet these obligations. Penalties also help to reassure customers who comply with their obligations that HMRC are applying the rules fairly and consistently.

Under Self Assessment (SA), HMRC requires information from customers in their tax returns to determine whether they have any liability to income tax. Even where a customer has no tax to pay, the information provided within their SA return ensures that taxpayers receive the benefits to which they are entitled, such as Tax-Free Childcare.

Where HMRC charges a penalty, a customer can formally appeal. HMRC will cancel any penalties where they accept that a taxpayer had a reasonable excuse for not filing their return on time.

HMRC is committed to helping all taxpayers pay their taxes and urges anyone having difficulty to make contact as soon as possible. Time to Pay arrangements are available for taxpayers who cannot afford to make full payment of their tax when it is due. Also, a Budget Payment Plan service allows Self Assessment taxpayers to make advance payments. HMRC has recently published YouTube videos on GOV.UK to help the self-employed, including one about ‘How to budget for your Self-Assessment tax bill if you’re self-employed’.

In Spring 2021 the government announced a new points-based penalty regime for regular tax return submission obligations, to replace existing penalties for VAT and Self Assessment. The new approach is fairer, with financial penalties arising only when the failure is consistent. For Self Assessment taxpayers, reformed penalties will begin when they join the Making Tax Digital (MTD) service for Self Assessment from April 2026 onwards.

HMRC issues Self Assessment (SA) tax returns to customers when the information they hold suggests that the customer meets the published criteria for completing one. HMRC often cannot determine someone’s tax liability until they have sent in a tax return, therefore they need the return to establish whether there is tax due or not.​​ Late filing and payment penalties are charged to encourage customers to file on time, but HMRC can cancel a customer’s late filing penalty if the customer has a reasonable excuse. Customers can also ask HMRC to remove them from the SA process for future years if they no longer meet the criteria.​

From October 2011 the penalty legislation changed, from this point the capping of penalties was no longer factored into the calculation and any fixed penalty applied remained at the full amount regardless of liability. Although no change to the current penalty regime has been announced, Penalty Reform within Making Tax Digital will change the way HMRC calculates penalties for late Submission and late payment of tax. The new legislation will factor in the Liability amount, Filing frequency and length of time outstanding within its penalty calculations.

In reforming late payment and late filing penalties HMRC’s aim is to encourage those who persistently default to comply with their tax obligations rather than penalise those who make occasional errors.

On 29 April 2021 officials from the Department for Transport met with the Cycle to Work Alliance along with officials from the Department for Business, Energy and Industrial Strategy, Her Majesty’s Revenue and Customs and Her Majesty’s Treasury to discuss the Alliance’s Report, which included a proposal to extend the Cycle to Work scheme to the self-employed. The report’s recommendations will be considered carefully to establish whether and how the Cycle to Work scheme could be improved.

The Self-Employment Income Support Scheme (SEISS), including the eligibility requirement that an individual’s trading profits must be at least equal to their non-trading income, is designed to target those who most need it, and who are most reliant on their self-employment income.

If an individual is not eligible based on their 2018-19 Self Assessment return, HM Revenue & Customs will then look at their Self Assessment returns from 2016-17, 2017-18 and 2018-19 to determine their eligibility. This reduces the impact of one-off events, such as a redundancy payment, in determining eligibility. More detail is available at www.gov.uk/guidance/how-hmrc-works-out-total-income-and-trading-profits-for-the-self-employment-income-support-scheme#eligibility.

The first £30,000 of a termination payment is not chargeable to income tax and is therefore not included in the calculation of an individual’s non-trading income. This further reduces the impact that a redundancy payment may have on eligibility for the SEISS.

Individuals who received more than half their income from non-trading sources in 2018-19 and did not have trading profits from earlier Self Assessment returns may still be eligible for other elements of the financial support provided by the Government. The SEISS is one element of a comprehensive package of support for individuals and businesses, including Bounce Back loans, tax deferrals, rental support, increased levels of Universal Credit, mortgage holidays, and other business support grants. More information about the full range of business support measures is available at www.gov.uk/government/collections/financial-support-for-businesses-during-coronavirus-covid-19.

Those who entered self-employment after the 2018-19 tax year and are ineligible for the Self-Employment Income Support Scheme may still be eligible for other Government support. For example, the self-employed can benefit from the relaxation of the earnings rules (known as the Minimum Income Floor) in Universal Credit. Individuals may also have access to a range of grants and loans depending on their circumstances, including the Coronavirus Business Interruption Loan Scheme and the deferral of tax payments.

Initial Self-Assessment payments for the 2020-21 tax year are not due until January 2021. However, some tax payments for the 2019-20 tax year would normally be due in July 2020.

The Government has taken immediate and unprecedented action to support small businesses and the self-employed with their finances, including deferring any Self-Assessment payments due this July to January 2021.

The Government has also announced the Self-Employment Income Support Scheme (SEISS), which will provide grants to self-employed individuals or partnerships worth 80% of their profits up to a cap of £2,500 per month. The minimum income floor for Universal Credit has been temporarily removed, ensuring self-employed claimants can benefit fully if their income has fallen. Further information about dedicated COVID-19 support for the self-employed can be found by visiting the GOV.UK website.