HMRC confirms £200 fines for self employed workers – started in April | Personal Finance | Finance

Brits could be at risk of missing a vital tax deadline, potentially resulting in fines of hundreds of pounds from HMRC. The Government continues its rollout of the Making Tax Digital initiative, a new way for self-employed people to report their income and expenses.

The new rules, which came into place on April 6, apply to all relevant workers whose annual income from self-employment and property exceeds £50,000. New research from accounting software firm Sage has shown that only 37% of sole traders are aware they must meet a tax deadline on August 7. Meanwhile, only 8% of those surveyed are using digital software to manage their tax records – something that will soon be mandatory under the new rules. Fortunately, sole traders can easily avoid being hit by any unexpected fines by taking advantage of MTD-compliant software, which can often sort out most of the reporting to HMRC on your behalf. Bear in mind that HMRC has confirmed new penalties will be put in place for late submissions alongside late payment penalties for people’s personal tax returns.

These penalties, which apply to anyone join Making Tax Digital for Income Tax, are based on a points system. For each quarterly update after the 2026/27 tax return deadline, you’ll receive a single penalty point.

Once four penalty points have been reached, you will be hit by a £200 penalty and then an additional £200 penalty for each time another submission deadline is missed. Meanwhile, late payment penalties are based on how long it takes to pay what you owe and what hasn’t been paid in full.

HMRC has given a small grace period for the 2026/27 tax year by not issuing any penalties for missing a quarterly update deadline until the 2027/28 tax year. Despite this, signing up to MTD-compliant software sooner, rather than later, could help you avoid facing any penalties at all.

Many software companies are providing various incentives to help sole traders sign up. For example, Sage has teamed up with Sky Sports commentator Gary Neville for part of a campaign targeting those working in the construction industry.

The former England right-back said: “There’s already enough admin pressure on sole traders trying to run a business day to day. A lot of people still don’t realise these tax changes are coming, so this is about helping tradespeople get ready with the right support and tools before the deadline hits.”

Xero is offering users who sign up now to get 80% off their software plan for the first six months. The software can allow you to track income and expenses on the go and offers various plans catered to different business needs.

Tide promises to help record transactions and help categorise them automatically in real-time. Tide’s software also helps with helping you prepare your Final Declaration before it’s submitted and is offering a chance to get £400 cashback and free payroll when you move over.

The transition to MTD changes the traditional tax-filing timeline. Instead of filing a single annual Self Assessment tax return, affected sole traders must adapt to a more frequent reporting cycle.

This involves keeping ongoing digital records of all transactions and submitting quarterly updates to HMRC. For many people entering the system under the new threshold, the first mandatory submission deadline falls on August 7.

To facilitate this process, taxpayers must utilise MTD‑compatible software, which is essential because it allows users to securely log their digital records and send the required updates directly to HMRC.

Full details on the potential penalties associated with Making Tax Digital can be found on the HMRC website here.