MTD for Income Tax penalties explained

Written by the Quidtrail team · Facts last checked 18 October 2026

The short answer: under Making Tax Digital for Income Tax, a missed deadline earns you a penalty point, not an immediate fine. At 4 points you pay £200, and another £200 for every further missed deadline. Late quarterly updates don't earn points in 2026 to 2027, but a late tax return does. Late payment penalties are a percentage of the tax you owe and grow the longer you leave it (GOV.UK).

General information, not tax advice. Check with an accountant or HMRC for your situation.

When the new penalties start for you

The new penalties replace the old Self Assessment late filing and late payment penalties from the tax year you join MTD. Earlier years stay on the old rules. For example, if you joined on 6 April 2026, your 2025 to 2026 return (due 31 January 2027) is still under the old penalties (GOV.UK).

The new penalties don't apply to returns for non-resident companies, trusts or estates (filed by a trustee), or partnerships (filed by the nominated partner). How late payment interest works doesn't change (GOV.UK).

From April 2027 the points system extends to Self Assessment taxpayers who aren't in MTD as well. See our guide to the Self Assessment penalty changes from April 2027.

Late submission penalties: how the points work

You get 1 point for each missed deadline, whether it's a quarterly update (from 2027 to 2028) or your tax return.
You can only get one point per deadline, even if you have several businesses and send several updates late.
At 4 points you get a £200 penalty, and another £200 each time you miss a deadline after that.
MTD points are separate from VAT penalty points.

Source: GOV.UK.

The threshold depends on how often you have to submit: 2 points for annual filers, 4 for quarterly filers (including MTD) and 5 for monthly filers (GOV.UK).

The 2026 to 2027 soft landing

For the first year (2026 to 2027) there are no penalty points for late quarterly updates. But you still have to send all four updates before your software lets you submit the tax return, and a late tax return still earns a point (GOV.UK). The government announced this at Budget 2025 (GOV.UK OOTLAR, 2.46).

How points are removed

Below 4 points: each point expires automatically 24 months after the missed deadline.
At 4 points: points don't expire one at a time. To clear them all, you need to meet every deadline for 12 months and also send anything outstanding from the previous 24 months.

You can see when your points will be removed in your HMRC online account (GOV.UK).

Late payment penalties

These apply to balancing payments and to amounts due after an amendment or assessment. They don't apply to payments on account. They aren't points-based, so each late payment can be penalised. Late payment interest is charged from the first day the payment is late (GOV.UK).

How late	2026 to 2027 tax year	2027 to 2028 tax year
Up to 15 days	No penalty	No penalty
16 to 30 days	3% of tax owed at day 15 (none in your first year)	4% of tax owed at day 15 (none in your first year)
31+ days	3% at day 15 + 3% at day 30, plus 10% a year charged daily from day 31 (up to 2 years)	4% at day 15 + 4% at day 30, plus 10% a year charged daily from day 31 (up to 2 years)

Source: GOV.UK.

First-year grace period: in your first year under the new penalties you have 30 days, rather than 15, to pay in full or set up a payment plan. You only get this once. If you volunteered first and then became required to use MTD, you stay on 15 days (GOV.UK).

Can't pay? Contact HMRC as soon as you can. If HMRC agrees a payment plan and you keep to it, penalties are paused from the date you got in touch (GOV.UK).

If you volunteered

While you're volunteering, late quarterly updates don't attract penalties. Late tax returns do: the threshold is 2 points, then £200. You agree to the new penalties when you sign up and can't switch back to the old ones, even if you stop volunteering (GOV.UK).

If you become required to use MTD from 2027 to 2028, your threshold goes up to 4. Any existing points are increased so you stay the same distance from it: 1 point becomes 3 (GOV.UK).

If you become exempt

Exempt during 2026 to 2027: you go back to the old Self Assessment penalties (GOV.UK).
Exempt in 2027 to 2028: you stay on the new penalties, because from April 2027 they apply to everyone filing a personal Self Assessment return. Your threshold drops from 4 to 2, and your points are reduced to match: 3 points becomes 1 (GOV.UK).

Appeals

HMRC writes to you about each late payment penalty, each penalty point and each £200 penalty. If you disagree, you can appeal, and the letter explains how (GOV.UK). HMRC may cancel penalties or points in exceptional circumstances, such as insolvency.

Last checked against GOV.UK on 18 October 2026. Not tax advice.

Frequently asked questions

Are there penalties for late quarterly updates in 2026 to 2027?

No penalty points for quarterly updates that year. Late tax returns and late payments can still be penalised (GOV.UK).

I have a rental property and a sole-trader business. Do I get 2 points if both updates are late?

No. You get one point per deadline, however many businesses you have (GOV.UK).

Do late payment penalties apply to payments on account?

No (GOV.UK).

How long do penalty points last?

24 months if you're below the threshold. At the threshold, you need 12 months of meeting every deadline, with nothing outstanding from the past 24 months (GOV.UK).

Do MTD points affect my VAT points?

No. They're kept separately (GOV.UK).

Sources

Facts last checked: 18 October 2026.