MTD Penalties 2026/27: Late Filing, Penalty Points and Payment Rules

MTD penalties changed when Making Tax Digital for Income Tax became mandatory in April 2026, but there is an important first-year concession. HMRC will not issue penalty points for late quarterly updates during the 2026/27 tax year.

Late tax returns and late payments can still lead to penalties. From 2027/28, late quarterly updates will also fall within the points-based late submission penalty system, with a £200 penalty once the relevant 4-point threshold is reached.

This update is for taxpayers who are filing under Making Tax Digital (MTD) and want to understand why penalties can be higher than under the previous system, especially where mtd accounting processes are not correctly followed. Understanding making tax digital penalties is particularly important where taxpayers have recurring submission obligations and therefore more than one deadline to manage.

HMRC has introduced a new points-based penalty system for MTD submissions, which changes how late filing penalties are triggered and applied under modern making tax digital accountants compliance frameworks.

Understanding how making tax digital penalties work is important because repeated late submissions can affect taxpayers differently from a single missed deadline under the previous filing system.

MTD Penalties in 2026/27 at a Glance

How Penalties Worked Before MTD

Under the previous rules, late filing penalties were usually charged as fixed amounts once a deadline was missed. For many taxpayers, this meant a single penalty applied each time a return was late, including those using an MTD Service in London.

While penalties could still add up over time, they were generally linked to individual late submissions rather than a rolling compliance record, and did not fully reflect ongoing making tax digital for accountants monitoring systems now in place.

Who Must Use MTD for Income Tax in 2026/27?

Making Tax Digital for Income Tax became mandatory from 6 April 2026 for qualifying sole traders and landlords whose qualifying income exceeded £50,000 on the relevant previous Self Assessment tax return, unless an exemption applies.

The qualifying income threshold falls to more than £30,000 from April 2027 and more than £20,000 from April 2028.

For a full breakdown of how MTD for Income Tax is being rolled out, what each phase requires, and how the rules apply to different income levels, read our complete MTD for Income Tax 2025/26 guide.

Initially, MTD for IT will apply to businesses, self-employed individuals, and landlords with an annual income exceeding £50,000. From 6 April 2027, the rules will extend to those with an income between £30,000 and £50,000, aligning with broader making tax digital deadlines. A new system of penalties for late filing and late payment of tax will also be introduced.

For taxpayers entering the regime, understanding MTD ITSA penalties is therefore part of preparing for the new reporting requirements and their recurring submission deadlines.

From April 2028, sole traders and landlords with income over £20,000 will need to follow MTD rules, with stronger reliance on structured mtd accounting systems. The government is also exploring ways to bring those earning under £20,000 within the MTD framework at a future date.

To help ensure taxpayers pay on time, HMRC increased the late payment penalties with effect from 1 April 2025. This applies to VAT-registered businesses as well as early adopters of making tax digital VAT.

The updated penalty rates are as follows:

• 15 days late: increased from 2% to 3%
• 30 days late: increased from 2% to 3%
• From day 31 onwards: a 10% annual penalty now applies, up from 4%, with daily interest added from this point

Taxpayers that remain with self-assessment face a separate set of penalty rules linked to traditional reporting expectations and non-digital processes where applicable, rather than full making tax digital compliance.

How the MTD Points-Based Penalty System Works

The new late submission regime uses penalty points rather than automatically charging a financial penalty for every isolated missed deadline.

2026/27: First-Year Quarterly Update Concession

For the 2026/27 tax year, HMRC will not issue penalty points when an MTD quarterly update is submitted late. The quarterly updates still need to be submitted before the taxpayer can submit their tax return.

This concession applies to quarterly updates only. It does not mean that all MTD penalties are suspended for the year.

From 2027/28: Quarterly Updates Enter the Points System

From the 2027/28 tax year, missing an MTD quarterly update deadline can result in a late submission penalty point.

For taxpayers required to use MTD for Income Tax, the penalty threshold is 4 points. Once the threshold is reached, HMRC charges a £200 penalty. A further £200 penalty can apply for each subsequent missed submission deadline while the taxpayer remains at the threshold.

MTD Late Payment Penalties in 2026/27

Late payment penalties are separate from the late submission points system. They apply where a relevant tax amount is not paid by its due date.

For taxpayers in their first year under the new late payment regime, HMRC provides 30 days from the payment due date to either pay the amount in full or contact HMRC to arrange a payment plan. If the debt remains unresolved after that period, late payment penalties can apply.

Late payment interest also runs from the first day the payment is overdue until the outstanding amount is paid.

Are MTD Income Tax Penalty Points Separate From VAT?

Yes. If you are also VAT-registered, your Making Tax Digital for Income Tax penalty points are kept separately from your VAT penalty points. A late VAT submission therefore does not simply add to the same points total used for MTD for Income Tax.

How MTD Penalties Can Build Up Over Time

The points-based system is designed to distinguish occasional mistakes from repeated non-compliance. A single late submission does not normally create an immediate £200 late-submission penalty, but repeated failures can move a taxpayer towards the penalty threshold.

Once the relevant threshold has been reached, further missed deadlines can each produce an additional £200 penalty until the taxpayer meets the conditions required for their points to be reset.

Because points can accumulate over time, taxpayers who repeatedly miss deadlines may find that penalties arise more frequently than under the old system.

This cumulative approach is one reason making tax digital penalties require careful deadline management, particularly for taxpayers with recurring submission obligations throughout the year

Even where individual delays seem minor, consistent late filing can quickly push a taxpayer over the penalty threshold, resulting in higher overall charges for those not following making tax digital deadlines or structured digital reporting practices.

The most effective way to avoid accumulating penalty points is to have the right systems and processes in place before deadlines become enforceable. Read our guide on preparing for Making Tax Digital compliance for a step-by-step walkthrough of what businesses and individuals need to do to transition smoothly.

How Do MTD Penalty Points Get Removed?

Once a taxpayer has reached the quarterly penalty threshold, their points do not simply disappear after one successful submission.

For quarterly obligations, HMRC normally requires:

• a 12-month period of meeting submission deadlines; and
• all submissions due in the previous 24 months to have been filed.

Once both conditions are satisfied, the points total can be reset to zero.

Who Needs to Pay Particular Attention

The MTD penalty rules apply to taxpayers within the scope of MTD, including those submitting mtd vat return updates for VAT and, in future, Income Tax.

Anyone required to submit regular updates should be aware that missed deadlines can have longer-lasting consequences under the points-based system, especially where proper mtd compliance processes are not in place or supported by effective making tax digital services.

The potential penalty of MTD non-compliance therefore depends on the applicable submission obligations and whether the taxpayer has reached the relevant points threshold. A making tax digital penalty should not be viewed in isolation where repeated late submissions can affect the taxpayer’s wider compliance record.

HMRC Guidance on MTD Penalties

HMRC explains how the MTD points-based penalty system works, including how points are accrued and cleared, in its official guidance on
GOV.UK. Understanding these rules can help taxpayers distinguish between individual MTD penalties and the circumstances in which accumulated points result in a financial charge.

Making Tax Digital Penalties Case Study: How Repeated Late Filing Can Lead to Penalties

During 2026/27, a late quarterly MTD update would not itself generate a penalty point because HMRC is operating a first-year concession for quarterly updates. However, the taxpayer still needs to bring the update up to date before submitting the tax return, and separate penalties can still arise for late tax returns or late payment.

From 2027/28 onwards, repeated late quarterly updates can generate penalty points. Once a mandated MTD taxpayer reaches the 4-point threshold, a £200 penalty applies, with further £200 penalties possible for additional missed deadlines while the threshold remains reached.

Sarah, a self-employed consultant, visited our Wimbledonoffice while preparing for Making Tax Digital for Income Tax. She had always filed her annual Self Assessment return on time, but she was concerned that having more recurring submission deadlines under MTD would make it easier to fall behind.

Her main question was whether being a few days late with an MTD submission would simply result in a one-off fine. We explained that Making Tax Digital penalties operate differently under the points-based late submission system.

Instead of looking at every late submission entirely in isolation, HMRC can add a penalty point when a required submission is missed. Once the applicable points threshold is reached, a financial penalty can arise. Further late submissions while the taxpayer remains at the threshold can result in additional penalties.

We used a simple example to make the distinction clearer. If Sarah repeatedly missed required quarterly deadlines, those failures could build towards the relevant threshold rather than each delay simply disappearing once the outstanding information was submitted.

We also discussed late payment separately. Sarah understood that filing information late and paying tax late are different compliance failures and can therefore have different penalty consequences.

The discussion changed how she viewed MTD penalties for late filing. Rather than treating each deadline as an isolated administrative task, she decided to maintain digital records throughout the year and build recurring submission checks into her bookkeeping routine.