MTD penalties: what happens if you miss a deadline?

In short: MTD penalties include late-submission points and late-payment charges. Four late-submission points trigger a £200 penalty, then further £200 penalties can follow, but late quarterly updates in 2026-27 do not get points; late final declarations still can. Late payment penalties are calculated separately on unpaid tax (GOV.UK: Penalties for Making Tax Digital for Income Tax).

How do MTD late-submission penalties work?

MTD late-submission penalties work through points: one point for each missed deadline, with a £200 penalty when you reach four points. Under Making Tax Digital, you get a maximum of one point per missed deadline even if you have several businesses.

These rules are separate from late-payment penalties. They apply to filing obligations, not the amount of tax due.

Is there a grace period in the first year?

There is a first-year grace period for late quarterly updates in 2026-27, because no late-submission points apply to late quarterly updates in that year. The grace period does not protect a late final declaration, which can still attract points if late.

This means the first MTD year is not penalty-free overall. It removes points for late quarterly updates only, while keeping the final declaration within the points system.

What are the late-payment penalties?

Late-payment penalties charge a percentage of unpaid tax, and the rates step up after the 2026-27 tax year. In 2026-27 the charges are 3% of unpaid tax at day 15 and a further 3% at day 30, rising to 4% and 4% from 2027-28 (GOV.UK: Penalties for Making Tax Digital for Income Tax).

The final declaration is due by 31 January after the tax year ends, and tax payment deadlines are unchanged. For the reporting timetable, see MTD quarterly updates: dates, deadlines and what to send.

How do you avoid MTD penalties?

You avoid MTD penalties by keeping digital records up to date, reviewing each cumulative update before its deadline, and submitting the final declaration by 31 January. Pay on time as well: late-payment penalties are separate from the points system and are charged on unpaid tax. Practical steps:

• Keep each self-employment and property business separate in your records.
• Review totals before the quarterly deadline rather than waiting until the day.
• Correct earlier mistakes in the next cumulative update.
• Track the final declaration separately from the four quarterly updates.
• Pay tax by the unchanged payment deadlines.

If you are unsure whether you are in scope, start with who has to use MTD for Income Tax.

Can you appeal?

You can appeal an MTD penalty within 30 days if you have a reasonable excuse. The penalty guidance is on GOV.UK, and any appeal should be handled within HMRC's stated process. An appeal is not a filing plan, though: the safer approach is to keep records current and submit on time.

Where something was wrong, correct it through the cumulative update process.

How can Taxley help you avoid MTD penalties?

Taxley's Making Tax Digital service for sole traders and landlords isn't available yet, so you can't use Taxley to keep MTD records or send quarterly updates today. We're building it to cover digital records, manual entry or CSV import, quarterly updates you review before sending, and the final declaration, for self-employment and UK and foreign property income.

Until it opens, use a product from HMRC's list of MTD-compatible software so you don't miss a deadline. The MTD Income Tax page shows our progress.

Frequently asked questions

How much is the MTD penalty for a late quarterly update?

Four late-submission points trigger a £200 penalty, and each further missed deadline while at the threshold can trigger another £200. No points apply to late quarterly updates in 2026-27, but a late final declaration can still attract them (GOV.UK: Penalties for Making Tax Digital for Income Tax).

Do MTD penalty points expire?

Yes. If you are below the 4-point threshold, HMRC removes each point 24 months after the missed deadline. At the threshold, all points are removed once you have sent your quarterly updates and tax return on time for 12 months and sent any outstanding submissions for the previous 24 months (GOV.UK: Penalties for Making Tax Digital for Income Tax).

Are late quarterly updates penalised in 2026-27?

No. No late-submission points apply to late quarterly updates in 2026-27, so that first year is a grace period for them. A late final declaration can still attract points, and late-payment penalties still apply to tax paid late (GOV.UK: Penalties for Making Tax Digital for Income Tax).

Are late-payment penalties the same from 2027-28?

No. For 2026-27 the day 15 and day 30 rates are 3% and 3%. From 2027-28 they rise to 4% and 4%, with 10% per annum from day 31 in both phases.