MTD Penalties Explained: The New Points-Based System for Late Submissions

Making Tax Digital for Income Tax does not just change how you report your income. It also introduces a completely new penalty regime for late submissions and late payments. Understanding how this system works is crucial for every self-employed person and landlord in Gravesend and across Kent who will be brought into MTD from April 2026.

At MCC Partners, we want to ensure our clients know exactly what is at stake and how to avoid falling foul of the new rules.

The Old System vs the New System

Under the current Self Assessment regime, you face a fixed £100 penalty if your tax return is even one day late, with escalating fines at three, six, and twelve months. The new system under MTD takes a different approach by using penalty points that accumulate over time.

This points-based system is already in use for MTD for VAT and will be extended to MTD for Income Tax from April 2026. The idea is to be more proportionate, giving taxpayers who occasionally miss a deadline some breathing room, while penalising persistent late filers more firmly.

How Penalty Points Work

Each time you miss a quarterly update deadline or your final declaration deadline, you receive one penalty point. Once you reach a certain threshold of points, a financial penalty of £200 is triggered, and every subsequent late submission also incurs a £200 penalty.

For MTD for Income Tax, where you have four quarterly submissions plus a final declaration each year, the penalty points threshold is set at four points. This means you would need to miss four deadlines before the first financial penalty kicks in. However, once that threshold is reached, every additional late submission costs you £200.

First-Year Easement for April 2026 Joiners

In recognition of the transition challenge, HMRC has confirmed that taxpayers joining MTD for ITSA in April 2026 will not receive penalty points for late submission of their first four quarterly updates. This gives you a full year of quarterly reporting to get used to the new system without the risk of accumulating points.

However, it is important to note that this easement does not apply to the final declaration for the 2026/27 tax year, which is due by 31 January 2028. Missing that deadline will still result in a penalty point. You also still need to submit all four quarterly updates before you can submit your final declaration, so falling behind will create problems even if no penalty points are issued.

Late Payment Penalties

Separate from the points-based system for late submissions, there are also penalties for paying your tax late. Under the new regime, you normally have 15 days after the payment deadline before a late payment penalty is charged. For the first year of MTD for ITSA, this grace period has been extended to 30 days, giving you a little extra time.

After the grace period, late payment penalties accrue based on the amount outstanding and how long it remains unpaid. Interest is also charged on late payments from the original due date. It is worth noting that HMRC has announced plans to increase late payment penalty rates from April 2027, so the cost of falling behind will only grow.

How to Reset Your Penalty Points

If you accumulate penalty points, you can reset your total back to zero by meeting all your submission deadlines for a continuous period. For quarterly obligations, you need to submit on time for 12 consecutive months. This gives you a clean slate, but it requires sustained compliance to achieve it.

Staying on the Right Side of the Rules

The best way to avoid penalties is straightforward: keep your digital records up to date, submit your quarterly updates on time, and file your final declaration before 31 January. Setting up calendar reminders for each deadline, maintaining a regular bookkeeping routine, and working with your accountant throughout the year rather than just at year end will all help.

How MCC Partners Can Help

At MCC Partners on Saddington Street in Gravesend, we help self-employed clients stay organised and compliant. We can manage your quarterly submissions, keep track of your deadlines, and ensure your records are always ready for the next update. With our support, you can focus on running your business while we make sure HMRC is kept satisfied.

Do not risk penalty points or fines when expert help is available. Contact MCC Partners today to discuss how we can support you through the transition to MTD and keep your submissions on track.