Missing a Making Tax Digital deadline can cost you money, but the penalty system is more nuanced than many people realise. Under HMRC’s points-based model, a single missed submission deadline will not usually result in an immediate financial fine, but points can build up. Once you hit the relevant threshold, penalties follow.
There is also a separate late payment penalty regime if you do not pay tax on time. That means a late filing problem and a late payment problem can create 2 different consequences.
Whether you are affected by MTD for VAT or now dealing with MTD for Income Tax, understanding the penalty rules before you miss something is far better than trying to navigate them afterwards.
Why HMRC Changed the Penalty System
The old system of automatic fixed penalties was often criticised for being disproportionate. Someone who missed a deadline by a short period could face the same initial penalty as someone who ignored the obligation for far longer.
The newer points-based system is designed to be more proportionate. It gives some flexibility for an occasional missed deadline while still escalating firmly for repeated non-compliance.
HMRC introduced the points-based late submission penalty system for VAT accounting periods starting on or after 1 January 2023. It also applies to Making Tax Digital for Income Tax from the tax year you join MTD.
Need Help With Your Accounts Or Tax?
Whether you need support with self assessment, VAT returns, payroll, bookkeeping, CIS, company accounts or corporation tax, Asmat & Co Accountants can provide clear, practical advice for your business or personal finances.
Our post on MTD for Income Tax covers the income tax side in full, and our guide to MTD for VAT is worth reading if you are VAT-registered and want to understand how both systems work together.
How the Points-Based Late Submission Penalty System Works
Every time you miss a relevant submission deadline, you receive 1 penalty point. Once your points reach the set threshold, HMRC issues a £200 financial penalty. After that, each further missed submission while you are at the threshold results in another £200 penalty.
The threshold depends on how frequently you are required to submit.
| Submission Frequency | Points Threshold For £200 Penalty |
|---|---|
| Annual submissions | 2 points |
| Quarterly submissions | 4 points |
| Monthly submissions | 5 points |
For most VAT-registered businesses submitting quarterly VAT returns, the relevant threshold is 4 points.
For people required to use MTD for Income Tax, the threshold is also 4 points. However, there is an important first-year easement. If you were required to use MTD for Income Tax from 6 April 2026, HMRC will not apply penalty points for late quarterly updates for the 2026 to 2027 tax year. You still need to keep digital records and submit those quarterly updates before you can submit your tax return.
From later years, missed quarterly update deadlines can result in penalty points. Missing the MTD tax return deadline can also result in a penalty point.
Our post on MTD timelines and quarterly updates has the full quarterly deadline calendar if you want to know exactly when each submission is due.
When Do Penalty Points Expire?
Penalty points do not stay on your record permanently, but they do not always disappear quickly.
If you are below the penalty threshold, each point is normally removed automatically 24 months after the missed deadline.
If you reach the penalty threshold, individual points do not simply expire one by one. You usually need to meet 2 conditions before your points can be reset:
- You must submit everything on time for the required compliance period
- You must submit any outstanding returns or updates due for the previous 24 months
For MTD for Income Tax, if you reach the 4-point threshold, you need to send your quarterly updates and submit your tax return on time for 12 months, as well as bring any outstanding quarterly updates and tax returns for the previous 24 months up to date.
For VAT, the good compliance period depends on your submission frequency.
| Submission Frequency | Good Compliance Period |
|---|---|
| Annual | 24 months |
| Quarterly | 12 months |
| Monthly | 6 months |
This means that once you reach the threshold, clearing the slate takes sustained compliance. Avoiding the threshold in the first place is much easier than trying to recover from it.
Our post on late tax returns and penalties covers the wider picture of HMRC penalty structures, including what happens under the older Self Assessment penalty system for obligations that have not moved into the new regime.
Late Payment Penalties: Separate From Late Submission Penalties
The points-based system deals with late submissions. Late payment penalties are separate and apply if the tax itself is not paid by the relevant deadline. Late payment interest also runs from the first day the payment is overdue.
For VAT payments under the current late payment penalty regime, the penalties are generally as follows.
| Time After Payment Deadline | Penalty Applied |
|---|---|
| Up to 15 days late | No late payment penalty, but interest accrues |
| 16 to 30 days late | 3% of the amount outstanding at day 15 |
| 31 days or more late | 3% of the amount outstanding at day 15, plus 3% of the amount still outstanding at day 30 |
| Day 31 onwards | A second penalty accrues daily at an annual rate of 10% on the remaining outstanding balance |
For MTD for Income Tax, the late payment penalty rules are being introduced with transitional timing. If you join MTD for Income Tax from 6 April 2026, the new late payment penalties apply from that tax year. In the first year of the new penalties, HMRC gives 30 days from the payment due date to either pay in full or contact HMRC to set up a payment plan. After the first year, this usually reduces to 15 days.
For the 2026 to 2027 MTD for Income Tax year, if payment remains outstanding for 31 days or more, the first late payment penalty can be 3% of the tax owed at day 15, plus 3% of the tax owed at day 30. A daily penalty at an annual rate of 10% can then apply from day 31 on the outstanding amount.
This structure gives you a clear reason to pay something, even if you cannot pay everything, because penalties are calculated on the amount outstanding at each stage rather than simply on the original full bill. It is also important to contact HMRC early if you need a Time to Pay arrangement.
How MTD for VAT Penalties Work in Practice
MTD for VAT has operated under the points-based late submission system since January 2023. If you are VAT-registered and submit quarterly returns, each late VAT return normally earns 1 penalty point. At 4 points, you receive a £200 penalty. After that, each further late return while you are at the threshold costs another £200.
If you also pay your VAT late, the late payment penalty system applies on top. The 2 sets of penalties are independent, which means missing a VAT deadline when you also owe money on that return can result in both a submission point and late payment penalties.
If you need help staying on top of your vat return filing services, having an accountant manage your returns means the submission timing is no longer something you have to track yourself.
How MTD for Income Tax Penalties Work
MTD for Income Tax is now mandatory for sole traders and landlords with qualifying income above £50,000 from 6 April 2026. The threshold falls to above £30,000 from 6 April 2027 and above £20,000 from 6 April 2028.
Under MTD for Income Tax, you must keep digital records and send quarterly updates using compatible software. You then submit your tax return using software after the end of the tax year.
For the 2026 to 2027 tax year, the quarterly update deadlines are:
| Quarterly Update | Deadline |
|---|---|
| First quarterly update | 7 August 2026 |
| Second quarterly update | 7 November 2026 |
| Third quarterly update | 7 February 2027 |
| Fourth quarterly update | 7 May 2027 |
| Tax return for the 2026 to 2027 tax year | 31 January 2028 |
For the 2026 to 2027 tax year, HMRC will not apply penalty points for late quarterly updates if you were required to join MTD for Income Tax from April 2026. However, you still need to submit the quarterly updates before your tax return can be submitted.
The tax return itself is different. If your MTD tax return is late, that can still result in a penalty point. Late payment penalties can also apply if your tax is not paid on time.
If you are a sole trader getting to grips with what all of this means for your specific situation, our post on self-assessment for sole traders is a helpful reference. Landlords should read our post on tax returns for landlords, which covers the obligations specific to property income.
The Common Mistakes That Lead to Penalties
Most people do not miss MTD deadlines deliberately. The issues tend to come from avoidable oversights. Our post on MTD pitfalls and 10 common mistakes goes into detail on the patterns that tend to result in missed deadlines and points accumulating. The most common include:
- Not signing up for MTD with HMRC before the mandatory start date
- Using software that is not genuinely MTD-compatible
- Assuming the submission has gone through when it has not been confirmed
- Losing track of quarterly deadlines while running a busy business
- Bookkeeping falling behind and not having the records ready in time
- Confusing quarterly updates with the year-end tax return
That last point is worth emphasising. Quarterly updates are summaries. The tax return is the formal year-end submission that finalises your overall tax position. They have different deadlines and are treated differently for penalty purposes.
What Counts As a Reasonable Excuse?
HMRC does accept appeals against penalty points and financial penalties if you have a genuine reasonable excuse for missing a deadline. The excuse must normally explain why you could not meet the obligation despite taking reasonable care.
Reasonable excuses HMRC may accept include:
- Serious or unexpected illness that prevented you from filing
- Bereavement of a close family member or partner close to the deadline
- A technical failure of HMRC’s own systems that prevented submission
- A fire, flood or other unexpected event affecting your records
- Serious disruption outside your control that made compliance impossible
Reasons HMRC does not usually accept include:
- Not being aware of the deadline
- Finding the software difficult to use
- Relying on an agent without checking they had everything needed
- Being too busy with work
- Not having the money to pay the tax, where the submission itself could still have been made
Financial difficulty may be relevant to payment discussions, but it is not usually a reason for failing to submit a return or update on time. If you cannot pay, you should still submit on time and speak to HMRC about a payment plan.
The key test is whether a reasonable, prudent person in your position could have been expected to comply despite the circumstances. If you had the means and opportunity to file but chose not to, a reasonable excuse argument is unlikely to succeed.
How to Appeal an MTD Penalty
If you receive a penalty notice and believe you have a reasonable excuse, you can appeal it through HMRC’s appeals process. There are a few important points to keep in mind:
- You generally need to appeal within 30 days of the penalty notice
- You can usually ask HMRC for a review or appeal to the First-tier Tax Tribunal
- You should provide clear evidence supporting your reasonable excuse
- Late payment interest can still accrue on unpaid tax while a dispute is being resolved
- If HMRC rejects your appeal, you may be able to take the matter further
Our post on HMRC enquiries and how an accountant can support you covers what the process of dealing with HMRC looks like when things escalate, including what documentation you are likely to need.
If you submitted an incorrect return rather than a late one, our post on amending a tax return explains how to correct it and what the implications are. Correcting errors promptly is almost always better than waiting for HMRC to notice.
What to Do If Your Bookkeeping Is Already Behind
One of the most common reasons people miss MTD deadlines is that their records are not in order in time to submit. If this applies to you, the first step is to get caught up as efficiently as possible rather than letting things slip further.
Our post on what to do if your bookkeeping is behind gives a practical plan for getting on top of your records. And our post on monthly bookkeeping with an online accountant explains how ongoing professional bookkeeping prevents this from happening in the first place.
Proper small business bookkeeping services mean your income and expenses are recorded correctly and consistently throughout the year, which makes quarterly MTD submissions much less of an event and much more of a routine.
Choosing the Right Software to Avoid Missed Deadlines
Most MTD-compatible software will help you keep digital records, prepare quarterly updates and confirm when a submission has been sent. Using the right tools is one of the simplest ways to reduce the risk of penalty points.
Our post on the MTD software shortlist for small businesses covers the main options available. And if you are currently using a spreadsheet and wondering whether to switch to cloud accounting software, our post on bridging software vs cloud accounting explains the practical difference between the 2 approaches.
If you are just getting started as self-employed and need to understand your MTD obligations from the outset, our post on registering as self-employed in the UK is a good first stop. And our post on cash basis vs traditional accounting will help you decide on the right accounting method before you set your records up.
Red Flags That Attract HMRC Attention
Missing deadlines is not the only thing that can create problems with HMRC. Consistently inaccurate submissions can also trigger compliance activity. Our post on tax return red flags covers the patterns in tax returns that tend to attract HMRC scrutiny, which is useful context alongside understanding the penalty regime.
If you want a broader understanding of your personal tax position and how all of your income fits together, our post on personal tax provides a clear overview of the main categories of taxable income and how they interact.
How Asmat & Co Accountants Can Help You Stay Compliant
The most reliable way to avoid MTD penalties is to have your submissions handled by people who do this every day. As chartered accountants in Slough with nearly 2 decades of experience, Asmat & Co Accountants manages quarterly MTD updates, tax returns and VAT returns for clients across the region.
Our self-assessment tax return services cover everything from sole trader income to property and investment income, with submissions made well ahead of the deadline wherever possible. For landlords, our guide to rental income and expenses explains how we categorise your income and outgoings to make sure every submission is accurate.
We also provide monthly financial reports so you always have a clear, up-to-date view of your finances throughout the year, which makes quarterly submissions a natural part of the rhythm rather than a scramble.
If you are a sole trader, our dedicated accountants for sole trader service covers your MTD registration, software setup, quarterly updates and tax return under one fixed monthly fee. For small business accountants Reading clients, we offer the same complete service from our Reading office.
Our reading accountants team is available to clients across Berkshire, and our post on switching to an online accountant explains how easy the transition is if you are currently managing your own submissions and finding it stressful.
If you are thinking about what professional accounting support actually costs compared to doing it yourself, our post on pricing for online accountants gives a realistic picture of what to expect.
Frequently Asked Questions
Will I definitely get a fine if I miss one MTD deadline?
No. Under the points-based system, one missed submission gives you 1 penalty point. For quarterly filers, the threshold is usually 4 points before a £200 penalty is triggered. However, points do accumulate, so repeated missed deadlines can quickly become expensive.
For MTD for Income Tax, HMRC will not apply penalty points for late quarterly updates in the 2026 to 2027 tax year for people required to join from April 2026. You still need to submit those updates before your tax return can be submitted.
Do penalty points apply separately for MTD for VAT and MTD for Income Tax?
Yes. They are separate systems with separate point totals. Points accumulated under MTD for VAT do not count towards your MTD for Income Tax threshold, and vice versa.
What if I registered late for MTD? Do I get penalty points for the period before I registered?
If you were required to use MTD and did not sign up or submit as required, HMRC may still treat missed obligations as late once the relevant penalty rules apply. Getting registered and up to date as quickly as possible limits your exposure.
Can my accountant appeal a penalty on my behalf?
Yes. If your accountant is authorised as your tax agent, they can communicate with HMRC on your behalf and submit an appeal. Having professional representation in these situations generally leads to a cleaner and more organised outcome.
What happens if I simply cannot afford to pay my tax bill on time?
You should still submit your return on time, even if you cannot pay. Late submission and late payment are treated separately. Submitting on time avoids a late submission penalty point, even if the payment itself is late.
If you genuinely cannot pay, contact HMRC as early as possible to discuss a Time to Pay arrangement. If a payment plan is agreed and you keep to it, late payment penalties can be paused from the date you contacted HMRC.
Does missing the MTD tax return count as one point or multiple points?
Missing the MTD tax return deadline can result in 1 penalty point. Quarterly updates and the tax return are separate obligations, so missing more than one deadline can create more than one point.
I have already accumulated 2 points. What should I do?
Submit every remaining deadline on time without exception. At 2 points, you are halfway to the penalty threshold for quarterly filers. If you are struggling to keep up, speak to an accountant who can take the submissions off your plate entirely.
Get Compliant Before the Penalties Add Up
MTD penalties are avoidable. With the right software, accurate records and professional support, there is no reason to accumulate points or face fines. If you are already behind or approaching the penalty threshold, the time to act is now.
Contact Asmat and Co today and let us get your MTD submissions back on track before anything escalates further.
Need Help With Your Accounts Or Tax?
Whether you need support with self assessment, VAT returns, payroll, bookkeeping, CIS, company accounts or corporation tax, Asmat & Co Accountants can provide clear, practical advice for your business or personal finances.
