Key changes to Income Tax administration, payments and penalties

CREATED BY ROGER EDDOWES Published: 11/12/2025 @ 09:00AM #IncomeTax #MTD #SelfAssessment #HMRC #TaxReformsUK #UKTax

Here's a quick take on Income Tax administration. New penalty rules, payment tweaks and MTD deferrals are coming. It's practical to plan now and avoid surprises ...

Income tax administration, A dreaded task each year, But necessary for society's function

With Making Tax Digital expanding, a soft landing has been announced for those joining in April 2026, meaning no penalty points for late submission of the first four quarterly updates, though the updates still need filing before a return can be submitted.

There is no let-up on the end-of-year deadline, so a late 2026/27 return will still attract a penalty point, and all taxpayers get an extra 15 days before a late payment penalty is issued in their first year under the new system.

This is a small but welcome nudge to improve
tax payments discipline!

The penalty regime itself is being widened, with HMRC penalties for late submission and late payment rolling out to all self-assessment taxpayers from the 6th of April 2027, reducing the two-tier feel between MTD users and those still on traditional ITSA.

However, from the 1st of April 2027, the government plans to increase penalties for late payment under both Income Tax and VAT, with full details to follow. This signals a firmer emphasis on timely settlement and places a premium on cash flow planning, particularly for those managing variable profits or multiple income streams.

There are some important deferrals and exemptions though:

• individuals with trust and estate income,
• those using averaging adjustments,
• those eligible for qualifying care relief,
• those completing SA109 for residence or remittance basis matters,
• and non-UK resident foreign entertainers or sportspeople.

These will all remain in ITSA until April 2027.

In addition, taxpayers under a Court of Protection deputyship are granted a permanent exemption, recognising the practical realities behind complex affairs and supporting sensible Income Tax changes.

A notable shift is coming for how liabilities are settled, where a taxpayer also has PAYE income. From April 2029, more self-assessment liabilities will be collected in-year via PAYE, with the government signalling a revenue spike due to overlap with payments on account.

A consultation in early 2026 will explore delivery and extend to timelier payment for taxpayers with only self-assessment income, which means more frequent, predictable payments (integrated within payroll where possible) and fewer surprises at year-end.

Ultimately, good planning means successful navigation
of these Income Tax changes!

With clearer rules, unified penalties, and a greater emphasis on timeliness, Income Tax administration is evolving into a system that rewards preparation and penalises drift, making deliberate planning the most efficient route to peace of mind.

Those who build reliable quarterly disciplines, keep liquidity buffers for unexpected swings, and engage early with digital tools will find the transition less disruptive.

Until next time ...

ROGER EDDOWES
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About Roger Eddowes ...
Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach. Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.

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