MTD Penalties Explained: What Happens If You Miss a Deadline

HMRC's new penalty system isn't like the old one

If you're used to the current Self Assessment penalty regime — a flat £100 fine for a late return — prepare for a change. Making Tax Digital for Income Tax brings in a points-based penalty system that works more like penalty points on a driving licence than a one-off fine.

It's designed to be lenient with occasional mistakes but come down hard on repeated non-compliance. Here's what that actually means for you.

Who does this apply to and when?

MTD for ITSA is being rolled out in waves:

• 6 April 2026 — Sole traders and landlords with gross income over £50,000
• April 2027 — Those with gross income over £30,000
• April 2028 — Those with gross income over £20,000

If you fall into any of these groups, you'll be required to submit quarterly updates to HMRC using compatible software, plus an end-of-period statement and a final declaration each year. Miss any of these, and the penalty points clock starts ticking.

How the penalty points system works

HMRC will assign you a penalty point every time you miss a submission deadline. Points accumulate, and once you hit a threshold, you get a financial penalty.

For quarterly MTD submissions, the threshold is 4 points. Hit 4 points and you'll receive a £200 fine — and a £200 fine for every further missed submission after that.

The penalty thresholds at a glance

• 1–3 points: No financial penalty, but you're being watched
• 4 points: £200 penalty, and £200 for each subsequent miss
• Annual submissions (end-of-period statement): Threshold is just 2 points before the £200 penalty kicks in

The key thing to understand: these points don't disappear automatically. You have to earn your way out of them.

How do you get rid of penalty points?

Points expire only when you meet two conditions:

1. You complete a period of full compliance — submitting everything on time for a set period (24 months for quarterly filers)
2. You've submitted all outstanding returns from the previous 24 months

In other words, you can't just wait for points to fall off. You have to demonstrate consistent, ongoing compliance. One slip during the compliance period resets the clock.

Late payment penalties — these are separate

The points system covers late filing. Late payment is handled differently, and the charges here can stack up quickly.

• Day 1–15 late: No penalty if you pay within 15 days of the due date
• Day 16–30 late: 2% of the unpaid tax
• Day 31+ late: 4% of the unpaid tax, calculated daily
• Day 31 onwards, ongoing: An additional 4% per annum charged daily on the remaining balance

So if you owe £5,000 in tax and you're 60 days late paying it, you're looking at 4% on day 31 (£200) plus the ongoing daily interest on top. It compounds — and it adds up.

Interest on top of everything

HMRC also charges interest on all late payments, separate from the percentage penalties above. The rate is currently the Bank of England base rate plus 2.5%. With base rates having been elevated in recent years, this isn't trivial.

Interest starts accruing from the payment due date, not from when HMRC decides to chase you. There's no grace period.

What about the quarterly updates — are they really mandatory?

Yes. Under MTD for ITSA, you must submit four quarterly updates per tax year for each business or property income source. These aren't optional summaries — they're mandatory digital submissions to HMRC containing your income and expenses for that quarter.

Miss one, and you get a penalty point. Miss four across a rolling 12-month period and the £200 fines begin. If you have multiple income sources (say, a sole trader business and rental income), each source is treated separately — so a slip on one doesn't affect the other, but you're also managing two sets of deadlines.

Quarterly deadline dates

• Quarter 1: 5 August (covers 6 April – 5 July)
• Quarter 2: 5 November (covers 6 July – 5 October)
• Quarter 3: 5 February (covers 6 October – 5 January)
• Quarter 4: 5 May (covers 6 January – 5 April)

These are for the standard period. If you use a non-standard accounting period, your dates will differ slightly — your software should handle this automatically.

Can you appeal a penalty?

Yes — and HMRC does have a reasonable excuse provision. If something genuinely outside your control caused you to miss a deadline (serious illness, bereavement, a natural disaster), you can appeal.

What doesn't count as reasonable excuse: forgetting, being busy, not knowing about MTD, or your software not working because you didn't set it up in time. HMRC's bar for "reasonable" is fairly high, and appeals take time and effort you'd rather not spend.

The best strategy is simple: don't get there in the first place.

The single biggest thing you can do to avoid penalties

Get the right software in place before your start date. This sounds obvious, but a huge number of penalties under systems like this come down to people scrambling at the last minute with incompatible tools, manual workarounds, or simply not realising what's required.

Good MTD-compatible software automates the quarterly submissions, reminds you of deadlines, and connects directly to HMRC's systems so there's no manual filing step. You enter your income and expenses as you go — or pull them from your bank automatically — and the software does the rest.

If you're not sure which software fits your situation (sole trader, landlord, or both), take five minutes to compare MTD software. The difference in price between options is often less than a single £200 penalty.

What if you're close to the £50,000 threshold?

If your gross income is anywhere near £50,000, HMRC will be looking at your 2024–25 Self Assessment return (submitted by January 2026) to determine whether you're in scope for Wave 1 from April 2026. Gross income means before expenses — so a landlord with £52,000 in rent but only £8,000 profit is still in Wave 1.

Don't assume you're below the threshold until you've checked your numbers carefully.

The bottom line

The new MTD penalty system is genuinely fairer than the old one for occasional mistakes — but it's unforgiving if you ignore it repeatedly. Four missed quarterly updates triggers a £200 fine, and then it's £200 every time after that until you've been fully compliant for two years straight.

The way to sidestep the whole system is to be set up properly from day one. The right software makes quarterly submissions almost frictionless — and frictionless means no late filings, no penalty points, and no nasty letters from HMRC.

Start comparing your options now at compare MTD software — well before your April 2026 start date if you're in Wave 1.