Making Tax Digital Penalties: Points, Charges and How to Stay Clear of Them
By Marina Jahan · Reviewed by Shamayun Chowdhury, CIMA · Tax year 2026/27 · Last reviewed [20 September 2026 ]
Talk to anyone who joined Making Tax Digital in April and the same worry comes up within a minute: what happens if I get something wrong? The truth is gentler than what gets passed around online. Nobody is fined for a single late quarterly update. In fact, for the first year, nobody gets so much as a penalty point for one.
That breathing space will not last, though, and the rules that replace it are different from anything Self Assessment taxpayers have dealt with before. Knowing how they work now is the cheapest way to make sure they never cost you anything.
Quick answer
HMRC Making Tax Digital penalties come in two main forms. Late quarterly updates and late tax returns earn penalty points, and a £200 charge follows only once you reach 4 points. Late payment brings percentage-based penalties plus interest. For people who joined in April 2026, late quarterly updates in the 2026/27 tax year carry no points at all, but late payment and a late tax return are still penalised.
When could your first penalty arrive?
If you joined Making Tax Digital on 6 April 2026: a late quarterly update can first earn a point if the update due on 7 August 2027 is missed; a late 2026/27 tax return can first earn a point if it is not filed by 31 January 2028; a late payment penalty can first apply to tax due on 31 January 2028 that stays unpaid beyond the grace period. Your 2025/26 return, due 31 January 2027, still falls under the old Self Assessment penalties.
What is MTD compliance?
In plain terms, being MTD compliant means doing four things the law now asks of anyone inside the rules. Keep on top of all four and a penalty has nothing to latch onto.
MTD compliance rules: the four duties
- Keep digital records. Every item of business or property income and expense is recorded in software, or in a spreadsheet linked to software, as the year goes on.
- Use recognised software, with unbroken digital links. Figures must pass from one program to the next without being retyped.
- Send each quarterly update on time. Four a year, due on 7 August, 7 November, 7 February and 7 May.
- Submit the year’s tax return and settle the balance by the following 31 January, and pay any instalments on account when they fall due.
Making tax digital compliance is really about the second and third of these. The first and fourth existed long before MTD; what is new is how records are kept and how often HMRC hears from you.
What is MTD compliant, and what does the phrase really mean?
Part of the muddle comes from the phrase doing double duty. A product described as MTD compliant is software that HMRC recognises as able to file under the rules. A person or business described as MTD compliant is one that is meeting all four duties above. The mtd compliant meaning people usually want is the second one: buying compliant software does not, on its own, make you compliant.
How to check MTD compliant status for yourself
Five quick checks tell you where you stand:
- Signed up. Your HMRC online account shows you are registered for Making Tax Digital for Income Tax, from the right tax year.
- Software connected. Your product appears in HMRC’s software finder and is authorised against your record.
- Obligations visible. Your software lists every income source with its quarterly deadlines.
- Nothing outstanding. Every update due so far has been sent, including any from the 2026/27 soft-landing year.
- No points on record. Your HMRC online account shows any penalty points and the date each would be removed.
If any of these fails, fix it before the next deadline rather than at the year end.
Making tax digital for income tax penalties: the three kinds
People inside MTD for Income Tax can face three different kinds of penalty. They follow separate rules, and mixing them up is behind a lot of the scaremongering you may have read.
| Kind of penalty | What triggers it | How it works |
|---|---|---|
| Late submission | Missing a quarterly update or tax return deadline | Points first; a £200 charge only at 4 points |
| Late payment | Not paying tax in full by the due date | A percentage of the tax owed, plus daily charges if it drags on |
| Inaccuracy | A careless or deliberate error in a return | Based on your behaviour and the tax at stake, under long-standing rules |
Points are only for lateness
Penalty points are given for one thing: missing a submission deadline. They are not handed out for errors, for choosing the wrong software or for paying late. Each of those has its own treatment.
Inaccuracy penalties have not changed
The rules for mistakes in a return pre-date Making Tax Digital and still apply. An honest slip made despite reasonable care usually attracts no penalty at all. Carelessness, and especially deliberate understatement, can lead to penalties calculated as a percentage of the extra tax, reduced if you tell HMRC yourself before it asks. Keeping accurate digital records is the best defence here, which is one reason the rules exist.
Income Tax and VAT points are kept apart
If you are also VAT registered, points for late VAT returns and points for late Income Tax submissions are recorded separately. A late VAT return does not push you closer to an Income Tax penalty, or the other way round.
How a making tax digital penalty point works
The points system borrows its logic from a driving licence. One slip costs a point, not money. Money follows only when slips keep happening.
Collecting points
You get one point each time you miss a deadline for a quarterly update or your tax return. Quarterly updates count from the 2027/28 tax year onwards; the tax return counts from 2026/27. Once you hold 4 points, HMRC charges a £200 penalty, and another £200 for every further deadline you miss while you are at that level.
Only one point is given per deadline, however many updates are late. Someone with a trade, a buy-to-let and a flat abroad who misses the 7 November deadline for all three still gets a single point, not three.
How points come off
Points do not stay forever, but how they leave depends on how many you have.
- Fewer than 4 points: every point expires by itself two years after the missed deadline that triggered it.
- At 4 points: points no longer fall away one by one. To clear them all, you must meet every deadline for 12 months in a row and also send anything still outstanding from the previous 24 months. Once both conditions are met, the whole slate is wiped.
Your HMRC online account shows the points you hold and the date each is due to be removed. In exceptional cases, insolvency for instance, HMRC can cancel points or penalties outright.
Illustrative example
Sara, a mobile hairdresser, misses her August 2027 update after a family emergency, then her February 2028 update while on holiday. She now has 2 points. If she files everything else on time, the first point disappears in August 2029 and the second in February 2030, and she never pays a penny. Had she reached 4 points, she would instead need a clean 12-month run before any of them came off. Names and details are made up to illustrate how the rule works.
Disputing a point or a charge
Every point, every £200 charge and every late payment penalty arrives with a letter from HMRC, and that letter sets out how to challenge it. A successful appeal usually rests on a reasonable excuse: something outside your control, such as serious illness, a bereavement or a failure of HMRC’s own systems, that stopped you meeting the deadline despite reasonable effort. Keep evidence at the time, and still send the late submission as soon as you can.
The 2026/27 soft landing, and when the first penalty can land
For people who joined on 6 April 2026, the first year comes with a concession: no points for late quarterly updates. It is narrower than many people assume, so it helps to see exactly what it does and does not cover.
| What you send or pay | Due | Which penalties apply |
|---|---|---|
| Quarterly updates for 2026/27 | 7 Aug 2026, 7 Nov 2026, 7 Feb 2027, 7 May 2027 | No points, but every update must still be sent before the 2026/27 tax return can be filed |
| 2025/26 tax return and payment | 31 January 2027 | The old Self Assessment penalties, because it is the year before you joined |
| 2026/27 tax return | 31 January 2028 | New points system applies |
| 2026/27 tax payment | 31 January 2028 | New late payment penalties, with a 30-day first-year grace period |
| Quarterly updates for 2027/28 onwards | From 7 August 2027 | New points system applies in full |
What the concession does not do
It does not cancel the updates. You still have to send all four before HMRC will accept your 2026/27 return, and an update that is never sent will eventually hold up the return, which does earn a point. It does not cover late payment. And, based on the published guidance, it is tied to the 2026/27 tax year rather than to your first year. Nothing on GOV.UK extends it to people joining in April 2027, so the April 2027 group should plan on points applying to their quarterly updates from the start.
Late payment penalties and interest
Late payment works differently from late filing. There are no points. Instead, each late payment is charged on its own, and the charge grows the longer the tax stays unpaid.
How the charges build up
| Days after the due date | Tax for 2026/27 | Tax for 2027/28 onwards |
|---|---|---|
| Up to 15 days | No penalty | No penalty |
| 16 to 30 days | 3% of what was owed on day 15, unless it is your first year in the new system | 4% of what was owed on day 15, unless it is your first year in the new system |
| 31 days or more | 3% of what was owed on day 15 plus 3% of what was owed on day 30, then 10% a year charged daily from day 31, capped at 2 years | 4% of what was owed on day 15 plus 4% of what was owed on day 30, then 10% a year charged daily from day 31, capped at 2 years |
Newcomers to the regime get a longer run-in: in the first year, no penalty is charged until 30 days have passed, rather than 15. You only get that longer window once: if you volunteered early and are now required to use MTD, your window stays at 15 days.
Interest is a separate cost. It starts on the first day the tax is overdue and keeps running until the debt is cleared, at 4% above the Bank of England base rate.
A worked example
Illustrative example
Ahmed joined MTD in April 2026. His 2026/27 balancing payment of £5,000 is due on 31 January 2028, and he pays it 60 days late. As a first-year taxpayer under the new rules, he faces no charge during the opening 30 days. From day 31 the full charge applies: 3% of £5,000 for day 15 (£150) and 3% for day 30 (£150). The daily 10% annual rate then runs for the 30 days from day 31 to day 60, adding about £41. Total penalties: roughly £341, plus late payment interest for the whole 60 days.
Had he paid on day 29, his penalty would have been nil, with only interest to pay. Figures are invented to show how the rules combine; your own bill will depend on the amounts and dates involved.
Two things that soften the blow
Payments on account are outside these penalties. The rules apply to your balancing payment and to tax due after an amendment or assessment, not to the payments you make on account towards next year’s bill. Interest still applies if those are late.
A payment plan stops the clock. If you cannot pay, contact HMRC before or during the grace period about a Time to Pay arrangement. Stick to an agreed plan and penalties stop accruing from the day you first contacted HMRC. Miss the instalments, and they can start again.
MTD compliance deadline: the dates that count
Every penalty in this guide is triggered by one of a handful of dates. There is no single mtd compliance deadline; there are five filing dates and up to three payment dates in each cycle.
| What | Deadline | Penalty if missed |
|---|---|---|
| Quarterly updates | 7 August, 7 November, 7 February, 7 May | A single point for each deadline missed, from 2027/28 |
| Year-end tax return | 31 January following the tax year | A single point |
| Balance of tax due | 31 January following the tax year | Percentage penalties and interest |
| Instalments on account | 31 January during the year and 31 July after it ends | Interest, but no penalty |
If you have chosen calendar quarters, your periods end on the last day of the month, but the update deadlines stay the same. The full calendar, including how your first year overlaps with the old system, is laid out in our guide to Making Tax Digital deadlines.
MTD non compliance: what counts, and what happens
Not every failure to follow the rules leads straight to a penalty, but none of them is free. Here is how the main kinds of mtd non compliance play out.
MTD penalties for non compliance, case by case
| What went wrong | What follows |
|---|---|
| Not signing up when you should have | HMRC is now signing up people it believes should be in MTD, using its own records. Your obligations still run from your start date, so missed updates and a late return soon add up |
| Never sending a quarterly update | Your tax return cannot be filed until every update for the year is in, so the return becomes late and earns a point |
| Keeping records outside software, or breaking digital links | The long-standing penalty for failing to keep proper records can reach £3,000, and poor records raise the risk of inaccuracy penalties |
| Sending a return with careless errors | An inaccuracy penalty based on the extra tax, reduced if you tell HMRC first |
| Paying late | Late payment penalties and interest, as set out above |
In practice, mtd non compliance penalties are rarely a single large fine. They are a chain: a missing update delays the return, the late return earns a point, the delayed calculation leads to late payment. Breaking the chain early is what keeps the cost down.
Volunteers, and people who become exempt
If you joined voluntarily
Volunteers are on a gentler version of the rules. Late quarterly updates earn no points, and the threshold for the £200 charge is 2 points rather than 4, reflecting that only the tax return counts. Paying late is treated exactly as it is for everyone else, and signing up early means accepting these modified terms.
If you become exempt
What happens depends on the year. Become exempt during 2026/27 and you return to the old Self Assessment penalties. Become exempt from 2027/28 and you stay on the new ones, because from April 2027 the new penalties apply to everyone who files a personal Self Assessment return. The trigger for a charge falls from 4 points to 2, and existing points are scaled back so you keep the same distance from it. Holding 3 of 4 points, for instance, becomes 1 of 2.
VAT penalties in brief
VAT has used a points system since January 2023, and it works in the same spirit. Where the line sits depends on your filing frequency: quarterly filers reach it at 4 points, monthly filers at 5 and annual filers at 2. At the threshold, each further late return costs £200. Late payment is dealt with separately, again with percentages and interest. The detail, including how VAT points are cleared, sits on our MTD for VAT page.
Avoiding making tax digital penalties
The system is designed so that an organised taxpayer never pays a penny. A few habits make that realistic:
- Treat the 2026/27 updates as practice, not as optional. Send them all, so the return is never held up.
- Set reminders for the 1st of August, November, February and May, a week ahead of each update deadline.
- Record transactions weekly rather than quarterly, so each update takes minutes.
- Check your HMRC online account once a quarter for points, outstanding updates and amounts owed.
- Put money aside as you go. The tax estimate after each update tells you roughly how much.
- Can’t see how you’ll pay? Ring HMRC while the grace period is still running.
Avoiding penalties under making tax digital when something goes wrong
Missed a deadline? Send the update or return as soon as you can. The point stands, but acting quickly stops a second one following and keeps the tax return on track. If there was a genuine reason, such as illness or a system failure, gather evidence and appeal when HMRC’s letter arrives. If you have hit 4 points, focus on a clean 12 months and on clearing anything outstanding from the last two years; that is the only route to a reset.
Let us keep you on the right side of the deadlines
Most penalties come from diaries, not from tax. We send every update and return for our clients from our own software, track payment dates and flag anything outstanding before it becomes a point.
MOST CHOSEN FOR MTD
Making Tax Digital
£15 a month
Anyone reporting Income Tax under MTD
- Every quarterly update sent before the deadline
- Tax return filed by 31 January
- Reminders before each payment date
Self Assessment
£7.50 a month
Anyone not yet inside MTD
- Return completed and filed on time
- Figures checked before submission
- Help with any HMRC letters
Missed a deadline, or about to?
Let us know which updates and returns have gone in and which haven’t. We’ll check your HMRC record, sort out anything outstanding and quote a fixed fee to keep you up to date from here.
Phone: 0116 403 0595 | Email: mtdfix@yahoo.com | Web: mtdfix.com
MTDFix, 6 Egginton Street, Leicester, LE5 5BA · Serving clients across the UK
Making Tax Digital penalty questions
Will I be fined for my first late quarterly update?
No. For 2026/27, late quarterly updates earn no points at all. From 2027/28, a late update earns one point, and money is only charged once you reach 4 points.
Do penalty points expire?
Yes. While you are below 4 points, each one is removed 24 months after the missed deadline. At 4 points, you need 12 months of on-time filing, and nothing outstanding from the previous 24 months, before they are all cleared.
Does a late VAT return count towards my Income Tax points?
No. VAT and Income Tax points are recorded separately, so a late VAT return has no effect on your Income Tax threshold.
I can’t pay my tax by 31 January. What should I do?
Get in touch with HMRC quickly to ask about instalments. Keep to whatever plan is agreed and late payment penalties stop from the day you called, though interest continues to build.
What happens if a payment on account is late?
There’s no late payment penalty on these instalments, but HMRC will add interest for every day they’re overdue.
Can I appeal a penalty point?
Yes. HMRC’s letter explains how. You will generally need a reasonable excuse, such as serious illness, bereavement or a failure of HMRC’s systems, and evidence to support it.
I volunteered for MTD. Do the same penalties apply to me?
A modified version does. Late quarterly updates earn no points, your threshold is 2 points, and late payment penalties apply as normal.
What to take away
Making Tax Digital penalties reward organisation rather than punishing a one-off slip. Send every update, including the ones that carry no points this year, file the return on time and pay by 31 January or arrange a plan before the grace period runs out. If points do build up, a clean year clears them. For how the Income Tax side works as a whole, see our guide to MTD for Income Tax.
General information about Making Tax Digital penalties as they stand for the 2026/27 tax year. It is not advice on your own circumstances, and HMRC can update its rules; confirm the current position on GOV.UK or with an accountant before you rely on it.
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