Making Tax Digital for Income Tax does not just change how you report — it also changes what happens if you are late. The old Self Assessment fixed late-filing penalties are replaced by a points-based system for missed submissions, and percentage-based penalties for late payment. If you are already worried about missing the 31 January deadline, see our Self Assessment penalties guide for the current rules. This guide covers the MTD-specific penalties that apply once you are in the MTD system.
What the New MTD Penalty Regime Covers
The MTD penalties apply if you miss any of the following:
- A quarterly update deadline
- The final declaration (end-of-year tax return) deadline
- A payment deadline
The new penalties do not apply to non-resident companies (SA700), trusts (SA900) or partnerships. They also do not apply to tax years before you joined MTD. According to HMRC’s guidance on penalties for MTD for Income Tax, the new regime replaces the old fixed late-filing penalties for anyone in scope of MTD.
Late Submission Penalties: Points-Based
For each quarterly update or final declaration you miss, HMRC gives you one penalty point. The system is designed so occasional one-off mistakes do not trigger an immediate fine — but repeated late submissions do.
The points threshold
Once you reach 4 penalty points, HMRC charges a £200 penalty. After that, you get another £200 penalty for every additional missed deadline.
You can only receive one penalty point per deadline, even if you have more than one business and more than one quarterly update to send. Your MTD for Income Tax points are separate from any VAT points you may have.
Worked example: missing quarterly updates
Here’s how the points build up if you miss quarterly update deadlines:
- Miss 1 quarterly update: 1 penalty point. No fine. You can submit late and the point stays on your record.
- Miss 2 quarterly updates: 2 penalty points. No fine yet.
- Miss 3 quarterly updates: 3 penalty points. Still no fine — but you’re one away from the threshold.
- Miss 4 quarterly updates: 4 penalty points. £200 penalty charged.
- Miss a 5th deadline: Another £200 penalty (on top of the first one).
The key point: the first three missed deadlines cost nothing in fines. The fourth triggers the £200 penalty, and every subsequent missed deadline adds another £200. The system is designed to catch persistent late filers, not people who miss one deadline due to illness or a software failure.
2026 to 2027: soft landing
There are no penalty points for late quarterly updates in the 2026 to 2027 tax year. This is a transitional year to help people adjust. However:
- You still need to keep digital records
- You still need to send quarterly updates
- You cannot submit your final tax return until your quarterly updates are in
- Penalties for late final declarations and late payment still apply
This means the points system effectively starts from the 2027/28 tax year for quarterly updates. But if you miss a final declaration deadline in 2026/27, points apply immediately — the soft landing only covers quarterly updates.
When points reset
Penalty points expire once you have met the submission deadline for a set period of time. The compliance period depends on how many submissions you owe per year:
| Submissions per year | Compliance period to reset points |
|---|---|
| 4 (quarterly updates only) | 4 consecutive timely submissions |
| 5 (quarterly updates + final declaration) | 4 consecutive timely submissions |
| 6 or more (multiple trades) | 4 consecutive timely submissions |
Once you complete the compliance period, all your points reset to zero. If you miss another deadline during the compliance period, the clock restarts. You can also appeal if you believe a point was applied incorrectly or you have a reasonable excuse.
Worked example: points reset
A sole trader with one trade accumulates 3 penalty points in 2027/28 by missing three quarterly updates. They then submit the fourth quarterly update on time, and the final declaration on time. That’s 2 consecutive timely submissions — not enough to reset (they need 4). In 2028/29, they submit the first and second quarterly updates on time — that’s 4 consecutive timely submissions in a row. All 3 points reset to zero. If they’d missed any of those 4 deadlines, the clock would have restarted.
Late Payment Penalties: Percentage-Based
Late payment penalties are not points-based. They apply to each late payment of:
- Balancing payments
- Amounts due after an amendment
- Amounts due after an HMRC assessment
They do not apply to payments on account.
How the penalties build
The sooner you pay, the lower the penalty. You also pay late payment interest from the first day your payment is overdue.
| Payment timing | Penalty for 2026 to 2027 | Penalty for 2027 to 2028 |
|---|---|---|
| Up to 15 days late | No penalty | No penalty |
| 16 to 30 days late | 3% of tax owed at day 15, or no penalty if it is your first year | 4% of tax owed at day 15, or no penalty if it is your first year |
| 31 days or more late | 3% of tax owed at day 15 and 3% at day 30, plus daily interest at 10% per year | 4% of tax owed at day 15 and 4% at day 30, plus daily interest at 10% per year |
The 30-day grace period only applies in your first year of the new penalty regime. After that, the penalty clock starts after 15 days.
Worked example: late payment penalty
A sole trader owes a £5,000 balancing payment due on 31 January 2028. They don’t pay until 15 March 2028 (43 days late). Here’s what they owe:
- Late payment penalty: 4% of £5,000 at day 15 = £200, plus 4% of £5,000 at day 30 = £200. Total penalty: £400.
- Late payment interest: 10% per year on £5,000, calculated daily from 1 February to 15 March (43 days). That’s approximately £5,000 × 10% × 43/365 = £59 per month, or roughly £118 for 43 days.
- Total cost of being 43 days late: £400 penalty + ~£118 interest = ~£518 on top of the £5,000 tax bill.
If they’d paid within 15 days (by 15 February), the penalty would have been £0 — only the interest would apply. The lesson: even if you can’t pay the full amount, paying something within 15 days eliminates the penalty portion.
Interest on late payments
HMRC charges interest on the unpaid amount from the first day the payment is late. The interest rate tracks Bank of England base rate plus a margin and is charged daily until the tax is paid. For up-to-date rates, check GOV.UK late payment interest.
What to Do If You Cannot Pay
If you cannot pay your tax bill on time, contact HMRC as soon as possible. You may be able to set up a Time to Pay arrangement, which can stop or reduce penalties if agreed before the deadline. See our can’t afford your tax bill guide and HMRC payment plan guide for the full process.
The key: setting up a Time to Pay arrangement before the deadline is far better than ignoring the bill. HMRC is more flexible with people who contact them early, and a payment plan can prevent the 15-day and 30-day penalty triggers from firing.
How to Appeal
You can appeal an MTD penalty if:
- You have a reasonable excuse for missing the deadline
- A penalty point or penalty was applied in error
- You have since become compliant for the required period and want points removed
According to HMRC’s guidance on appealing Self Assessment penalties, a “reasonable excuse” includes things like:
- Your partner or a close relative died shortly before the deadline
- You had an unexpected stay in hospital that prevented you from dealing with your tax
- You had a serious or life-threatening illness
- Your computer or software failed just before or while you were preparing your return online
- You were unable to file because of a fire, flood or theft
- HMRC’s online service was down for an extended period
What does not count as a reasonable excuse:
- You found the MTD system too complicated
- You forgot the deadline
- You were too busy at work
- You didn’t receive a reminder from HMRC (HMRC does not send individual reminders for quarterly updates)
You can appeal online through your HMRC account or by post. Keep evidence such as medical records, proof of software failure, or correspondence with HMRC. See our appeal HMRC penalty guide for the full appeal process.
The Bottom Line
MTD penalties are more forgiving than the old Self Assessment fixed penalties for occasional one-off slips, but they add up quickly if you are repeatedly late. The 2026 to 2027 soft landing removes quarterly update points, but late final declarations and late payments are still penalised. The best protection is to keep records current, set calendar reminders for the quarterly dates (7 August, 7 November, 7 February, 7 May), and pay on time or contact HMRC early if you cannot.
For the current Self Assessment penalties, see our Self Assessment penalties guide. For the full MTD overview, see our Making Tax Digital guide. For the complete MTD filing process, see our how to file MTD guide.