MTD Penalties for Late Submission: What You Risk

Making Tax Digital for Income Tax introduces a new penalty system. Unlike the old Self Assessment regime — where you could get away with being a bit late and paying a fixed fine — the new system uses penalty points that accumulate over time. Miss enough deadlines and the financial consequences start adding up.

Understanding how this system works is important, because the penalties are designed to catch people who are consistently late, not just those who slip up once. This guide explains the full penalty structure, how points accumulate, and what you can do to avoid problems.

The Points-Based Penalty System

HMRC has replaced the old fixed penalties with a points-based system for late submissions. Here is how it works:

How Points Accumulate

Every time you miss a submission deadline — whether it is a quarterly update, your End of Period Statement, or your Final Declaration — you receive one penalty point.

Points accumulate regardless of the reason for the late submission. Whether you forgot, your software had a problem, or you simply did not get around to it, the point is applied.

The Penalty Threshold

For obligations with quarterly deadlines (which is what MTD for Income Tax requires), the penalty threshold is four points.

Once you reach four points, you receive a £200 financial penalty.

After the Threshold

Once you have reached the four-point threshold, every subsequent late submission triggers an additional £200 penalty. There is no further accumulation of points — you are already at the threshold. Each new late submission simply generates another £200 fine.

This means the cost of continued non-compliance escalates:

Late Submissions	Points	Financial Penalty
1st	1 point	None
2nd	2 points	None
3rd	3 points	None
4th	4 points	£200
5th	4 points (at threshold)	£200
6th	4 points (at threshold)	£200

So if you miss all four quarterly deadlines in your first year, you will hit the threshold on the fourth late submission and owe £200. Miss all four again in the second year, and that is another £800 in fines (£200 per late submission when already at threshold).

How to Reset Your Points

Points do not stay on your record forever. You can reset your penalty points to zero by meeting two conditions:

1. Submit all outstanding returns — you must be fully up to date with no overdue submissions
2. Achieve a period of compliance — you must submit on time for a set period after reaching the threshold

For quarterly obligations, the compliance period is 24 months. This means you need to submit every quarterly update, EOPS, and Final Declaration on time for two full years after reaching the threshold before your points reset to zero.

This is a long time. It is much better to avoid reaching the threshold in the first place.

Late Payment Penalties (Separate From Submission Penalties)

The penalties described above are for late submissions — failing to send your quarterly updates or declarations on time. There is a separate penalty regime for late payment of tax.

How Late Payment Penalties Work

Late payment penalties apply when you do not pay your tax by the due date:

• Up to 15 days late: No penalty (grace period)
• 16-30 days late: Penalty of 2% of the tax owed at day 15
• 31+ days late: An additional 2% of the tax owed at day 30, plus a daily penalty calculated at an annualised rate of 4% on the outstanding amount from day 31 onwards

Example

You owe £5,000 in tax and pay it 45 days late:

• At day 15: 2% of £5,000 = £100
• At day 30: Additional 2% of £5,000 = £100
• Days 31-45 (15 days): 4% annualised on £5,000 = approximately £8.22
• Total penalties: approximately £208.22 (in addition to the tax itself)

Late payment penalties can add up quickly on larger tax bills. The lesson is clear: if you owe tax, pay it on time — or contact HMRC to arrange a Time to Pay agreement if you are struggling.

Interest on Late Payments

On top of penalties, HMRC charges interest on any tax paid late. The interest rate is the Bank of England base rate plus 2.5%. Interest accrues from the day the tax was due until the day it is paid.

This is separate from and in addition to the late payment penalties.

Reasonable Excuse

HMRC recognises that sometimes late submissions are genuinely unavoidable. If you have a reasonable excuse for missing a deadline, you can appeal the penalty point.

Reasonable excuses may include: - Serious illness or bereavement - An unexpected hospital stay - A fire, flood, or other natural disaster affecting your records - Service issues with HMRC's own systems - A partner or close relative dying shortly before the deadline

What is not a reasonable excuse: - Forgetting the deadline - Being too busy - Your software being difficult to use - Not knowing about the obligation - Relying on someone else (like an accountant) who failed to submit on time

If you have a reasonable excuse, the penalty point is not applied — but you must have evidence to support your claim.

Penalties in the First Year: Will HMRC Be Lenient?

HMRC has indicated it will take a "proportionate" approach during the initial rollout of MTD for Income Tax. In practice, this means:

• The penalty points system applies from day one
• However, HMRC may be more willing to accept reasonable excuse claims in the early stages
• There is no formal amnesty or grace period
• The best approach is to comply from the start and not rely on HMRC's discretion

Do not assume leniency. HMRC's track record with MTD for VAT shows that penalties are applied, even if enforcement may be slightly softer in the first few months.

How to Avoid Penalties

The penalty system is designed to be avoided. Here is how:

1. Set Up Your Software Now

Choose HMRC-recognised MTD software and set it up before your first deadline. If your records are in order, quarterly submissions take minutes. For a comparison of options, see our guide to the best MTD software for sole traders.

2. Record Transactions Regularly

Do not leave record keeping to the week before the deadline. Spend a few minutes each week logging your income and expenses. When the quarter ends, your submission is essentially ready.

3. Set Calendar Reminders

Put all four quarterly deadlines in your calendar at the start of the year. Set reminders a week before each deadline so you have time to review and submit without pressure.

4. Submit Early

You do not have to wait until the deadline. As soon as the quarter ends, you can review your summary and submit. The earlier you submit, the less chance of something going wrong at the last minute.

5. Do Not Ignore Problems

If you are struggling with your software, your records, or understanding what to submit, get help early. Contact your software provider, speak to an accountant, or check HMRC's guidance. A problem that seems small a month before the deadline becomes urgent on the day.

What This Means in Practice

For a sole trader or landlord submitting quarterly updates, the penalty system works like this over the first two years:

Year 1 — Perfect compliance: - All four quarterly updates submitted on time - EOPS and Final Declaration submitted on time - Penalty points: 0 - Financial penalties: £0

Year 1 — Two late submissions: - Q1 and Q3 submitted on time, Q2 and Q4 submitted late - Penalty points: 2 - Financial penalties: £0 (below threshold) - Warning: two more late submissions will trigger the £200 penalty

Year 1 — All four quarterly updates late: - Penalty points: 4 (threshold reached on Q4) - Financial penalty: £200 (triggered when threshold reached) - Every subsequent late submission now costs £200

The message from HMRC is clear: occasional lateness is tolerated (up to a point), but persistent lateness is not.

Get Compliant and Stay Compliant

The easiest way to avoid MTD penalties is to use software that makes compliance simple. ClearMTD is built to keep you on track — it shows your upcoming deadlines, prepares your quarterly summaries, and lets you submit to HMRC in a few clicks.

No penalty points. No £200 fines. No stress. Create your free ClearMTD account and stay on the right side of HMRC.

For a full overview of how MTD for Income Tax works, see our guide on MTD for Income Tax 2026. You may also want to read about the MTD soft landing in 2026 and what happens if you miss an MTD deadline.

Frequently Asked Questions

Do I get a penalty point for a nil return submitted late?

Yes. Even if your income and expenses are zero for a quarter, you must still submit a quarterly update by the deadline. A late nil return still earns a penalty point.

Can my accountant be penalised instead of me?

No. The penalty points and financial penalties are applied to you, the taxpayer, regardless of whether an accountant was responsible for the late submission. You may have a contractual claim against your accountant, but HMRC holds you responsible.

What if HMRC's systems are down on the deadline day?

If HMRC's own systems are unavailable and you cannot submit because of a technical issue on their end, this would typically constitute a reasonable excuse. Keep evidence (screenshots, error messages) and submit as soon as the system is available.

Are penalty points shared across different tax obligations?

No. Penalty points for MTD for Income Tax are tracked separately from penalty points for MTD for VAT (if applicable). Late VAT submissions do not count towards your Income Tax penalty threshold and vice versa.

Can I check how many penalty points I have?

Yes. You can view your penalty points through your HMRC online account. It is good practice to check periodically, especially if you have had a late submission, to understand where you stand relative to the threshold.