MTD penalties: HMRC fines explained
HMRC's MTD for Income Tax has its own penalty regime, a points-based system for late submissions, and separate percentage-based charges for late tax payments. Both regimes have transition rules in the early years that materially soften them. Here's exactly what HMRC will (and won't) penalise you for.
By Mehmet Demir · Last reviewed: 2 May 2026 · Source: HMRC · Methodology
Bottom line
Important 2026-27 note
HMRC has confirmed there are no penalties for missing a quarterly update deadline in the 2026-27 tax year. You still need to keep digital records and submit those updates before you file your final tax return, but a missed quarterly update doesn't earn a point in 2026-27. Quarterly-update points start applying from 2027-28.
Two separate penalty regimes can hit you under MTD ITSA:
- Late submission (tax return): 1 point per missed deadline; £200 penalty once you reach the 4-point threshold (quarterly filers).
- Late payment of tax: in your first year of MTD ITSA penalties, you have 30 days from the due date to pay or contact HMRC before penalties start. After year one, the grace period is 15 days. If payment reaches day 31, HMRC applies day-15 / day-30 / day-31 charges (3% in 2026-27, 4% from 2027-28, plus a 10%/year daily charge from day 31).
Late submission: the points-based system
HMRC issues one penalty point each time you miss a submission deadline. When points reach a threshold, you get a £200 financial penalty, and another £200 for each subsequent missed deadline while you remain at the threshold.
| Filing frequency | Points threshold | Penalty at threshold |
|---|---|---|
| Annual | 2 points | £200 |
| Quarterly (MTD ITSA) | 4 points | £200 |
| Monthly | 5 points | £200 |
What counts as a submission for MTD ITSA? Your end-of-year tax return is in scope from day one. Quarterly updates are NOT in scope for 2026-27: HMRC has explicitly exempted them for the first year. From 2027-28 onwards, missed quarterly updates also accrue points.
Source: HMRC: Penalties for Making Tax Digital for Income Tax ↗
Points are removed automatically 24 months after the deadline they relate to, provided you stay below the threshold. To reset accumulated points to zero, you need a full compliance period plus all outstanding submissions filed.
Late payment penalties
Late-payment penalties apply to tax owed (typically on your final tax return), not to quarterly updates. The exact percentages depend on which tax year the tax related to:
| Days late | 2026-27 rate | From 2027-28 |
|---|---|---|
| Days 1-15 | No penalty | No penalty |
| Days 16-30 | 3% of day-15 balanceNo penalty if it is your first MTD year and you pay or contact HMRC by day 30 | 4% of day-15 balanceNo penalty if it is your first MTD year and you pay or contact HMRC by day 30 |
| Day 31 onwards | +3% of day-30 balance + 10%/yr daily | +4% of day-30 balance + 10%/yr daily |
First-year filers get a 30-day grace. In the first year you're in the new MTD ITSA penalty regime, you have until day 30 to pay or contact HMRC before penalties start. After that first year, the grace period reduces to the standard 15 days.
HMRC also offers Time-to-Pay arrangements that pause further penalties from the date you agree the plan, provided you stick to it. Apply before the due date if you can, or as soon as possible afterwards.
What HMRC does NOT explicitly penalise
Some things you might assume are penalised under MTD ITSA aren't actually called out as such on HMRC's current MTD penalties guidance:
- Quarterly updates in 2026-27. No points, no fines (but you must still file them eventually).
- A specific "digital records breach" fine for ITSA. A separate £400-per-breach penalty exists for MTD for VAT, but the MTD for Income Tax penalties guidance does not currently set out an equivalent flat fine. If HMRC challenges your records, the consequence is more typically a discovery assessment or an inaccuracy penalty linked to the underlying error.
Don't take this as licence to skip records. Digital record-keeping is still a legal requirement under MTD ITSA, the point is just that the headline £400 penalty figure belongs to the VAT regime, not ITSA.
How to appeal
- Act within 30 days. The clock starts on the date of the penalty notice. Late appeals are usually rejected unless the delay itself has a reasonable excuse.
- Give a reasonable excuse. Serious illness, bereavement, fire/flood, or a technology failure outside your control are all accepted. "I forgot", "my accountant didn't do it", and general software confusion are not.
- Submit via HMRC online account or in writing. Include the penalty reference, the dates, and any supporting evidence.
- If rejected, escalate to a tribunal. The First-tier Tribunal hears MTD penalty disputes; an accountant or tax adviser can represent you.
How to avoid penalties altogether
- Don't skip the quarterly updates anyway. They aren't penalised in 2026-27, but you can't file your final tax return until they're submitted, and from 2027-28 the points start applying.
- Set diary reminders 30 and 7 days before each deadline.
- Use software with built-in reminders. Most MTD-compatible packages flag upcoming submissions in-app.
- Pay early. The day-15 / day-30 schedule is unforgiving once you exit the first-year grace. A standing order or earmarked savings account beats relying on memory.
FAQs
Are quarterly updates penalised in the first year (2026-27)?v
How does HMRC's points-based late submission system work?v
What about late tax payments?v
What are the late payment rates exactly?v
Can I appeal an MTD penalty?v
What if I sign up for MTD voluntarily but then miss a submission?v
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