HMRC MTD late payment penalties: what UK Landlords and Small Business owners need to know by 2025
As part of the government’s Making Tax Digital (MTD) initiative, HMRC is introducing stricter late payment penalties from April 2025. These changes will impact self-employed individuals, small business owners, and UK landlords especially those who aren’t yet prepared for the digital tax reporting requirements.
If you fall into one of these categories, understanding the upcoming changes is essential to avoiding unnecessary penalties.
What is MTD and who does it affect?
Making Tax Digital is HMRC’s move to modernise the UK tax system by requiring digital record-keeping and quarterly tax submissions. MTD for VAT is already in place, and from April 2026, it will extend to Income Tax Self-Assessment for self-employed and rental property owners with turnover over £50,000 (reducing to £30,000 for April 2027:
However, well before that, late payment penalties under the MTD system are being updated starting April 2025.
What are the new MTD late payment penalties?
From April 2025, HMRC will adopt a points-based penalty system for late submissions, and a new interest-based model for late payments.
Here’s how the late payment penalties will work:
- Up to 15 days late – no penalty (if paid or a Time to Pay agreement is reached within this period).
- 16 to 30 days late – a 3% penalty on the amount still unpaid after day 15.
- 31+ days late – a total 6% penalty (3% after day 15 and another 3% after day 30), plus daily interest charged at HMRC’s standard interest rate.
- Further delays – additional daily penalties may apply if the debt remains unpaid.
⚠️ The sooner you act on unpaid tax, the lower the penalty.
How can I avoid MTD late payment penalties?
Whether you’re a landlord managing rental income or a small business juggling multiple obligations, these steps can help you stay compliant:
- Get Digital-Ready Now – Start using MTD-compliant software such as Xero, QuickBooks, or FreeAgent. If you want to know more about MTD software, please contact a member of our team.
- Submit and Pay on Time – Keep clear records, automate reminders, and avoid last-minute scrambles.
- Set up a Payment Plan if needed – If you can’t pay in full, contact HMRC early to arrange a Time to Pay agreement – this can stop penalties escalating.
- Get Expert Help – At BAS Associates, we help businesses and landlords prepare for MTD, manage submissions, and avoid costly mistakes. Contact us here.
BAS Associates: Your MTD support partner
We work with limited companies, sole traders, and landlords across the UK, making tax compliance simpler and less stressful. Whether you’re just starting out or you’re already using accounting software, we’ll ensure you’re set up to meet the new HMRC MTD penalty rules head-on.
Need help getting MTD-ready?
Contact our team today to avoid fines and stay one step ahead of HMRC’s changes.
🔗 Helpful Links: HMRC MTD for Income Tax Guidance
