What Happens If I Ignore Making Tax Digital?

Making Tax Digital is mandatory, not optional. If your income exceeds the threshold, you're legally required to keep digital records and submit quarterly updates. But what actually happens if you don't?

The grace period (2026/27 only)

HMRC has confirmed a soft landing for the first year. During 2026/27, you won't receive penalty points for late quarterly submissions. This doesn't mean MTD is optional — it means HMRC is giving everyone time to adjust before enforcing penalties.

This grace period does not cover late payment of tax. If you owe tax and don't pay on time, interest and late payment penalties still apply from day one.

From 2027/28: penalty points

Once the grace period ends, each late quarterly submission earns you a penalty point. After 4 points, you receive a £200 fine — and every subsequent late submission incurs another £200 fine. Points take 24 months of perfect compliance to clear.

What if you just don't sign up?

HMRC knows who should be in MTD — they have your Self Assessment returns and income data from employers and platforms. If you're above the threshold and don't sign up, expect HMRC to contact you. They've been sending letters to affected taxpayers since late 2025.

Ignoring MTD doesn't make you invisible. It makes you a target for compliance action.

What about filing Self Assessment instead?

MTD replaces the quarterly reporting obligation but doesn't fully replace Self Assessment yet. You'll still need a Final Declaration (similar to the annual tax return). But you cannot substitute quarterly MTD updates with an annual Self Assessment return — they're separate requirements.

Can HMRC fine me for not keeping digital records?

Yes. The requirement to keep digital records is part of MTD legislation. HMRC can issue penalties for failure to maintain adequate records. In practice, they're more likely to pursue late submission penalties first.

The practical reality

The first year is forgiving. But from April 2027, HMRC will enforce penalties, and the income threshold drops to £30,000 — bringing millions more people into scope. Getting set up now, while it's calm and there's a grace period, is far better than scrambling later when penalties are live.

It takes 5 minutes

Sign up for MTD on GOV.UK, connect free bridging software like Flonancial, and submit your first quarterly update when it's due. The whole process takes less time than worrying about it.