MTD for Income Tax penalties: points and late payment rules

Making Tax Digital for Income Tax comes with a new penalty regime. It replaces the old Self Assessment penalties from the tax year you start using MTD. It has two separate parts: points for sending things late, and penalties for paying late.

Late submission works on points. Missing a deadline gives you a point, and only reaching a threshold of points brings a money penalty. Late payment works on percentages of the tax that is still unpaid, plus interest.

GOV.UK also says that from April 2027 the new penalties will apply to everyone who submits a personal Self Assessment tax return, not just people using MTD. Late payment interest works the same way as before.

You get a penalty point for each quarterly update deadline you miss, for tax years after 2026 to 2027, and for each tax return deadline you miss. A point on its own costs nothing. It is a warning that counts towards the threshold.

You can only get one point per deadline. If you have a sole-trade business and a UK property business and both updates are late for the same deadline, that is one point, not two.

Your Making Tax Digital for Income Tax points are kept separately from any VAT penalty points. A late VAT return does not add to your Income Tax total.

The penalty point threshold is 4 points. When you reach it, you get a £200 penalty. You then get another £200 penalty each time you miss another submission deadline while you are at the threshold.

Here is how that builds up for a fictional sole trader who misses five deadlines in tax years where quarterly update points apply. The amounts are the fixed figures on GOV.UK.

If you are below the 4-point threshold, HMRC automatically removes each point 24 months after the missed deadline that caused it.

Once you reach the threshold, points are no longer removed one by one. To clear them you must meet both of these conditions. You must send your quarterly updates and submit your tax return on time for 12 months. You must also send any outstanding quarterly updates and tax returns for the previous 24 months.

If you become insolvent, HMRC resets your points total to zero.

HMRC’s wording is: “There are no penalties for missing a quarterly update deadline for the 2026 to 2027 tax year.” This covers the first year for people who started on 6 April 2026.

The easement does not make updates optional. You still need to keep digital records and send your quarterly updates before you can submit your tax return. If you have missed one, HMRC asks you to send the overdue update as soon as possible.

The easement only covers quarterly updates. For the 2026 to 2027 tax year, penalty points still apply for missing the tax return deadline, which is 31 January 2028. Penalties also still apply if you pay your tax bill after the due date.

Late payment penalties apply to tax paid after its due date. They do not apply to payments on account. If you agree a payment plan with HMRC and keep to it, penalties are paused.

In your first year of the new penalties you have 30 days from the payment due date to pay in full or contact HMRC to set up a payment plan. After 30 days, HMRC starts to apply penalties. You only get the 30-day period once. From your second year it drops to 15 days. If you volunteered earlier and now have to use MTD, you keep the 15-day period.

The rates depend on the tax year and how late the payment is. The 10% yearly rate is charged daily on the amount still outstanding from day 31 until the tax is paid, for up to 2 years.

Interest is separate from the penalties. HMRC charges late payment interest from the first day your payment is late until you pay in full. GOV.UK says there are no changes to how late payment interest works under Making Tax Digital.

HMRC’s Making Tax Digital penalty pages do not state the interest rate itself, so check the current rate on GOV.UK. Payment dates do not change under MTD. Our article on payments on account explains when tax is due.

Your 2025 to 2026 return is a normal Self Assessment return, due online by 31 January 2027. The current penalties apply to it, even if you started Making Tax Digital in April 2026.

Under those rules, a late return gets a £100 penalty. After 3 months, daily penalties of £10 a day apply, up to £900. At 6 months and again at 12 months there is a further penalty of 5% of the tax due or £300, whichever is greater. Late payment brings penalties of 5% of the unpaid tax at 30 days, 6 months and 12 months.

Exemptions affect which regime you are on. If you become exempt in the 2026 to 2027 tax year, you go back to the current Self Assessment penalties. If you become exempt in 2027 to 2028, you stay on the new penalties, and your points threshold drops from 4 to 2.

People who join Making Tax Digital before they have to agree that the new penalties apply to them. You cannot change your mind once you have agreed.

Volunteers do not get penalties for late quarterly updates. A late tax return does earn a point, with a threshold of 2 points and a £200 penalty. Points reset after 2 tax returns sent on time.

At Budget 2026 on 28 October 2026, the government announced that it will not apply late submission penalty points to quarterly updates for the 2027 to 2028 tax year for people who must start using Making Tax Digital in April 2027. This is an announcement. It is not yet in HMRC’s guidance and is subject to legislation.

Until HMRC updates its guidance, the penalties page still says points apply to quarterly updates for tax years after 2026 to 2027. The safest plan is to send every update by its deadline, which also keeps your tax estimate up to date. Software such as SimpleTaxFlow shows the deadlines HMRC holds for each of your businesses.

Tax rules can change and your circumstances matter. Use HMRC’s current guidance to confirm what applies to you.