MTD penalties explained: what actually gets charged and when

Marcus, a landlord with two flats in Bristol, heard the phrase “soft landing” and relaxed a bit too much. Understandably. It sounds like a blanket, doesn’t it, something that catches you if you fumble the whole first year. It isn’t. It covers one specific thing and leaves two others completely exposed, and those two are the ones with actual money attached.

Let me untangle the three separate systems, because they genuinely are separate, and mixing them up is exactly how someone like Marcus ends up with a penalty he thought he was protected from.

System one: late submissions, and the points that don't bite yet

Miss a quarterly update or the final declaration and you get one point. Doesn’t matter if you’re a day late or three months late, it’s the same single point either way. For quarterly filers, once you hit four points, HMRC issues a £200 fine. Every late submission after that adds another £200, with no ceiling.

Here’s the actual soft landing, precisely scoped: for the 2026/27 tax year, the first year mandation is live, HMRC will not issue points for late quarterly updates. That’s it. That’s the whole concession. You still have to submit them, because HMRC won’t let you file your final declaration until all four exist, but a late one in year one costs you nothing in points.

One detail worth knowing if you’ve got more than one income source, say a property business and a sole trade running alongside it. Filing one late and the other on time in the same quarter still only costs you a single point, not two. Small mercy, but a real one if you’re juggling two sets of books.

Points aren’t permanent. They expire automatically after 24 months if you stay under the threshold. If you’ve already hit the £200 stage, resetting to zero needs a full 12 months of on-time submissions plus everything outstanding from the last two years filed. Not instant, but not a life sentence either.

System two: late payment, where the soft landing doesn't reach

This is where Marcus got caught out, and it’s the one worth genuinely worrying about, because the money adds up fast.

Pay your tax bill late and the charges are percentage-based, not points-based, and they escalate on a schedule. As things stand, tax still unpaid 15 days after the due date attracts a 3% penalty on the amount owed. Still unpaid at 30 days, another 3% gets added on top. From day 31 onwards, it’s 10% per year, running daily, for as long as the balance sits unpaid. Those rates step up to 4% and 4% from April 2027, so this is only going to get less forgiving, not more.

The one genuine concession for year one: in 2026/27 you get 30 days from the due date to pay in full, or to get a Time to Pay arrangement agreed with HMRC, before any late payment penalty starts. That drops to the standard 15 days from 2027/28. So Marcus did get an easier ride on this specific point, just not the unlimited one he assumed.

And interest runs the whole time regardless, from the original due date, calculated at the Bank of England base rate plus a margin. Interest isn’t a penalty and you can’t appeal it. It’s just the cost of owing HMRC money.

Worth saying plainly: none of this changes when you actually pay. MTD doesn’t create new payment dates. Your balancing payment is still due 31 January, your second payment on account still 31 July, same as under the old Self Assessment system. What changed is how often you report, not when you pay.

System three: the one almost nobody mentions

If you don’t keep your records in functional, compatible software, HMRC can charge a penalty of up to £3,000 per quarterly period. This isn’t about being late. It’s about the records themselves not meeting the digital standard, a genuine spreadsheet with proper formulas is fine, a shoebox of receipts and a mental tally is not. Nobody talks about this one because it rarely gets enforced in year one, but it exists, and it’s the reason “I’ll just wing it on paper and catch up later” is a worse plan than it sounds.

What actually protects you

Two real things. First, if you genuinely can’t pay, contact HMRC before the deadline and agree a Time to Pay arrangement. Penalties stop accruing once that’s in place; interest doesn’t, but the penalty clock does. Second, there’s a statutory right to appeal, and a reasonable excuse can get a penalty cancelled entirely. HMRC will write to you whenever you get a submission point, a £200 fine, or a payment penalty, and that letter explains how to appeal. Don’t ignore the letter assuming it’ll sort itself out.

Practically, the whole system rewards knowing your dates cold. The deadlines calendartells you exactly which quarter you’re on and how many days you’ve got left, which matters more here than in most tax contexts, because the penalty maths genuinely changes at day 15 and day 30.

For the wider rules on whether you're even in scope and how the quarterly updates work day to day, start with the main MTD guide.

Questions people ask

Does the soft landing mean I can ignore quarterly deadlines in 2026/27?

No. It means a late quarterly update won’t cost you a pointthis year. It doesn’t excuse you from submitting them, since HMRC won’t process your final declaration until all four exist, and it does nothing for late payment, which is a separate system entirely.

I'm a few days late paying. Am I definitely fined?

In your first year (2026/27), no, not immediately. You have 30 days from the due date before any late payment penalty applies. After that first year, the grace period drops to 15 days.

Can a penalty actually be cancelled?

Yes, with a reasonable excuse, and you have a statutory right to appeal. HMRC can also cancel penalty points or waive penalties in exceptional circumstances such as insolvency. The letter you receive when a penalty is issued explains the appeal route.