What Happens If I Ignore Making Tax Digital? (UK 2026 Guide)
With Making Tax Digital (MTD) expanding, many sole traders and landlords are asking:
What happens if I ignore Making Tax Digital?
The short answer is:
Ignoring Making Tax Digital when it applies to you can result in penalties, interest, and compliance action from HMRC.
However, the impact depends on:
- Whether MTD applies to you yet
- Your income level
- Whether you continue filing under old systems
- Whether you deliberately refuse to comply
In this guide, we explain:
- Who Making Tax Digital applies to in 2026
- What you are required to do
- What happens if you ignore it
- The penalty regime
- Practical steps to avoid problems
What Is Making Tax Digital?
Making Tax Digital (MTD) is HMRC’s move towards:
- Digital record keeping
- Quarterly reporting
- Software-based submissions
- Reduced reliance on annual paper or manual returns
The goal is to modernise the tax system and reduce errors.
There are two main areas relevant to most small businesses:
- MTD for VAT
- MTD for Income Tax Self Assessment (MTD for ITSA)
Who Must Comply With Making Tax Digital in 2026?
1. MTD for VAT
If your business is VAT registered, you are already required to:
- Keep digital VAT records
- Submit VAT returns using compatible software
This has applied to most VAT-registered businesses for several years.
Ignoring MTD for VAT is not an option — it is mandatory.
2. MTD for Income Tax (MTD for ITSA)
MTD for Income Tax is being phased in.
From April 2026:
- Sole traders and landlords with qualifying income over £50,000 must comply.
From April 2027:
- Those with qualifying income over £30,000 must comply.
Further expansion is expected in later years.
Qualifying income generally includes:
- Self-employment income
- Rental income
If you fall within these thresholds, MTD becomes mandatory — not optional.
What Does Compliance Actually Involve?
If MTD for Income Tax applies to you, you must:
- Keep digital records
- Use HMRC-compatible software
- Submit quarterly updates
- Submit an End of Period Statement (EOPS)
- Submit a Final Declaration
This replaces the traditional once-a-year Self Assessment process.
What Happens If You Ignore MTD for VAT?
If you are VAT registered and ignore MTD requirements:
You may face:
- Penalties for incorrect submission
- Penalties for late filing
- Interest on late payments
- HMRC compliance intervention
Submitting VAT returns manually outside approved software (when required to use MTD) is not compliant.
Repeated non-compliance increases the risk of enquiry.
What Happens If You Ignore MTD for Income Tax?
If you are required to comply with MTD for Income Tax from April 2026 and choose to ignore it:
You may face:
- Failure-to-file penalties
- Points-based late submission penalties
- Late payment penalties
- Interest charges
- Increased scrutiny from HMRC
The new penalty regime is designed to encourage digital compliance.
The New Points-Based Penalty System
For late submissions under MTD:
- You receive penalty points for missed deadlines.
- When you reach a threshold, a financial penalty is triggered.
Points expire only after a period of compliance.
This means repeated ignoring of quarterly submissions could quickly accumulate penalties.
Can You Just Continue Filing Annually?
If MTD applies to you, continuing to file under the old annual-only Self Assessment system will not be compliant.
HMRC will expect:
- Quarterly updates
- Digital records
- Software-based submissions
Ignoring the change will not prevent HMRC from applying penalties.
What If You Do Nothing?
If you simply do nothing:
- You may fail to submit required quarterly updates.
- You may miss deadlines.
- HMRC may issue penalty notices.
- You may receive compliance letters.
Over time, interest and penalties accumulate.
Ignoring letters from HMRC increases risk significantly.
Can HMRC Force You to Join MTD?
If you fall within the mandatory income thresholds, you are legally required to comply.
Failure to do so is not simply a technical error — it is non-compliance with statutory reporting requirements.
HMRC has enforcement powers, including:
- Penalties
- Estimated assessments
- Debt recovery action
What If You Genuinely Struggle With Technology?
There are limited exemptions for:
- Age-related digital exclusion
- Disability
- Remote location issues
- Religious objections
However, these exemptions are not automatic and must be applied for.
Simply disliking software or preferring spreadsheets is not a valid exemption.
Will HMRC Be Lenient at the Start?
There may be a short “soft landing” approach in early implementation phases.
However:
- This does not remove legal obligations.
- Persistent non-compliance will not be ignored.
Planning ahead is far safer than hoping enforcement will be relaxed.
What Are the Real Risks of Ignoring MTD?
The main risks are:
1. Financial Penalties
Repeated missed submissions will generate penalties under the points system.
2. Interest Charges
Late payment interest applies regardless of MTD compliance.
3. Increased HMRC Scrutiny
Non-compliance increases the likelihood of review or enquiry.
4. Administrative Stress
Ignoring digital compliance often results in rushed corrections and reactive firefighting.
Is MTD More Expensive?
There may be:
- Software subscription costs
- Additional bookkeeping time
- Accountancy support costs
However, ignoring MTD can be significantly more expensive if penalties arise.
What Should You Do Instead of Ignoring It?
If MTD will apply to you:
-
Confirm your qualifying income level.
-
Identify whether April 2026 or April 2027 applies to you.
-
Set up compatible software early.
-
Ensure bookkeeping is up to date.
-
Understand quarterly submission requirements.
Preparation reduces disruption.
Is Making Tax Digital a Tax Increase?
No.
MTD does not increase tax rates.
However, it increases reporting frequency and compliance obligations.
If your records are disorganised, the transition may feel significant.
How Merranti Accounting Can Help
At Merranti Accounting, we support clients through MTD transitions by:
-
- Reviewing whether MTD applies to you
- Confirming qualifying income levels
- Setting up compliant digital systems
- Ensuring quarterly submissions are accurate
- Managing deadlines
- Reducing penalty risk
Our goal is to make compliance structured and manageable rather than reactive.
If you are unsure whether you fall within the April 2026 threshold, early review is advisable.
Final Answer: What Happens If You Ignore Making Tax Digital?
If Making Tax Digital applies to you and you ignore it:
- You may face late submission penalties
- You may incur late payment penalties and interest
- HMRC may escalate compliance action
- Stress and administrative burden will increase
MTD is not optional once your income exceeds the mandatory thresholds.
The safest approach is early preparation and structured compliance rather than reactive correction.
Individual circumstances vary, and advice should be taken based on your income level and reporting obligations.
