MTD News Digest: HMRC Letters, Penalty Grace Period & What UK Landlords Need to Know (February 2026)

HMRC Begins Sending MTD Notification Letters

HMRC has begun sending notification letters to the 864,000 sole traders and landlords who must comply with Making Tax Digital for Income Tax from 6 April 2026. With less than two months to go, the government has also confirmed a 12-month penalty grace period for late quarterly updates in year one.

This month marks a significant ramp-up in HMRC's preparations for Making Tax Digital (MTD) for Income Tax. The first batch of awareness letters has been dispatched, the voluntary testing programme has passed 20,000 quarterly updates, and we now have clearer details on the new penalty regime's soft landing period.

In early February, HMRC commenced its formal communications campaign, sending letters in batches to taxpayers identified as falling within the first wave of MTD for Income Tax. The letters target individuals who declared more than £50,000 in combined gross income from self-employment and property on their 2024-25 Self Assessment returns.

The first batch of letters was sent between 2-13 February, with a second batch scheduled for 16-27 March. If you filed your 2024-25 return close to the 31 January deadline, or filed late, your letter may not arrive until late March.

Craig Ogilvie, HMRC's Director of Making Tax Digital, described the change as the most significant change to the Self Assessment regime since its introduction in 1997.

Confirmed: 12-Month Penalty Grace Period for Year One

Landlords and sole traders entering MTD in April 2026 will not receive penalty points for late quarterly updates during the entire 2026-27 tax year. This soft landing was announced at the Autumn Budget 2025 and has now been reiterated in HMRC's official communications.

How the New Penalty System Works

• Late submission penalties: You receive one penalty point for each missed quarterly update deadline. Once you accumulate four points, a £200 financial penalty is triggered.
• Late payment penalties: No penalty if you pay within 15 days of the due date (extended to 30 days for year one). After that, a 2% charge applies, rising to 4% for amounts still unpaid after 30 days.
• Points expiry: Penalty points expire after two years of compliant filing.

Important Caveats

• The soft landing covers late quarterly updates only. Penalty points can still apply for late filing of your Final Declaration, due by 31 January 2028.
• Taxpayers joining MTD from April 2027 onwards will not receive the same soft landing.
• You still have a legal obligation to keep digital records and submit quarterly updates during the grace period.

Industry Readiness: Concerns Persist

• The NRLA reports that one in five landlords in scope have done nothing to prepare.
• 80% of accounting professionals consider MTD for Income Tax the sector's biggest challenge.
• BDO has warned that many landlords may be blissfully unaware that they are in scope.
• HMRC's voluntary testing programme has processed over 20,000 quarterly updates successfully.

What's Not Changing

• No extra tax to pay. MTD changes how you report income, not how much tax you owe.
• Payment schedule unchanged. Quarterly updates are reporting obligations, not payment deadlines.
• 2025-26 tax return filed normally through existing Self Assessment by 31 January 2027.
• Limited companies excluded. MTD for Income Tax does not apply to limited companies.
• Joint ownership halves income. Only your share counts towards the £50,000 threshold.

Key Dates at a Glance

• 6 April 2026: MTD goes live for those with qualifying income over £50,000.
• 7 August 2026: First quarterly update deadline.
• 7 November 2026: Second quarterly update deadline.
• 7 February 2027: Third quarterly update deadline.
• 6 April 2027: MTD extends to £30,000 threshold.
• 7 May 2027: Fourth quarterly update deadline.
• 31 January 2028: 2026-27 Final Declaration deadline.
• 6 April 2028: MTD extends to £20,000 threshold.

Your Preparation Checklist

1. Confirm whether you are in scope. Check your 2024-25 Self Assessment return.
2. Choose HMRC-recognised software. Landlord Studio is HMRC-recognised and built for UK landlords.
3. Set up a dedicated bank account for your rental business.
4. Talk to your accountant about how they will handle MTD submissions.
5. Digitise your records. Transition from paper receipts or spreadsheets to digital.
6. Contact your letting agent about supporting your MTD obligations.
7. Sign up on GOV.UK for MTD for Income Tax through Government Gateway.

Broader Context: A Busy Year for UK Landlords

• Renters' Rights Act 2025 comes into force on 1 May 2026.
• New MEES proposals expected later in 2026.
• Points-based penalty regime extends to all Self Assessment taxpayers from April 2027.

Getting your digital record-keeping and compliance systems in order now will pay dividends across multiple regulatory obligations throughout the year.

This article is for general information purposes only and does not constitute tax advice. Please consult a qualified tax professional or accountant for advice specific to your circumstances.