HMRC has confirmed that landlords and self-employed individuals who volunteer to participate in the upcoming tranche of MTD for Income Tax Self Assessment (ITSA) trials will be covered by the traffic light penalty system for late filing of tax returns and late payment of tax rather than the current regime.

The trials are set to start later this month with the first penalties only applied to annual tax obligations due in January 2026.

HMRC said: ‘The new system will penalise those who persistently do not comply by missing filing and payment deadlines, while being more lenient on those who occasionally fail to meet obligations.’

The penalties are described as ‘fairer, points-based sanctions for late submission of returns and more proportionate penalties for late payment of tax liabilities’.

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