MTD penalties explained: what gets charged and when

Marcus is fictional, but his question is common. He has heard that the first year of Making Tax Digital comes with a soft landing and wants to know whether that protects him if an update, tax return or payment is late. It does not protect all three.

Submission points, payment penalties and late-payment interest are separate systems. The first-year concession applies to quarterly updates for 2026/27, while the annual return and unpaid tax continue to have their own consequences. Keeping those systems apart makes the deadlines much easier to plan for.

Quarterly updates have a first-year concession

HMRC will not apply late-submission points to quarterly updates for the 2026/27 tax year. The updates are still required, and all four need to be sent before the MTD tax return can be submitted. The concession therefore removes the point for a late quarterly update; it does not remove the underlying filing task.

After 2026/27, a missed quarterly deadline can add one point. A taxpayer with more than one business receives no more than one point for the same quarterly deadline, even if updates for both businesses are late. The annual MTD tax return deadline also sits inside the points-based regime and is not part of the quarterly-update concession.

The financial penalty begins when the points threshold is reached

Quarterly filers have a threshold of four points. Reaching it triggers a £200 penalty, and each further missed submission while the taxpayer remains at the threshold triggers another £200 penalty. HMRC writes to the taxpayer when a point or financial penalty is applied.

Points can expire while the total remains below the threshold. Once the threshold has been reached, returning to zero requires a period of on-time compliance and the outstanding submissions from the preceding period to be filed. That structure is intended to distinguish an isolated mistake from a repeated pattern.

Late-payment penalties use elapsed days and percentages

The payment rules do not use points. In a taxpayer’s first year under the new penalty regime, they have 30 days from the payment due date to pay in full or arrange a payment plan with HMRC before a late-payment penalty is charged. In later years that window reduces to 15 days. Someone who joined voluntarily before becoming mandated may already have used the first-year treatment, so the account position needs checking.

For tax due for 2026/27 and still unpaid after 30 days, the published structure is 3% of the amount outstanding at day 15 and another 3% of the amount outstanding at day 30. From day 31, a further charge runs daily at an annual rate of 10%, for up to two years or until the amount is paid. For 2027/28, the day-15 and day-30 percentages rise to 4%.

These late-payment penalties apply to balancing payments and certain amounts arising from amendments or assessments. HMRC’s current MTD guidance says they do not apply to payments on account. Late-payment interest is separate and can still run from the first day a relevant amount is overdue.

Interest starts before a financial penalty may appear

Late-payment interest compensates HMRC for receiving money after the due date. It runs from the original due date until payment, using HMRC’s published interest rate. It is not a penalty, so the reasonable-excuse appeal route for penalties does not apply in the same way, although a taxpayer can ask HMRC to explain or correct the calculation.

Making Tax Digital changes the reporting rhythm rather than the familiar Self Assessment payment calendar. The balancing payment remains due on 31 January, and a second payment on account can remain due on 31 July. The quarterly updates do not create four new tax-payment dates.

The digital-record duty continues during the soft landing

A taxpayer in MTD must create and keep the required digital records and preserve the links when information moves between compatible products. The 2026/27 quarterly concession does not turn paper-only records into a compliant system. Record-keeping failures can be considered separately in an HMRC check, with penalties depending on the statutory failure and the surrounding facts.

A spreadsheet can form part of a compliant route when it is connected to suitable bridging software and the required digital links are maintained. The issue is not whether the records look sophisticated; it is whether the required transactions are recorded digitally and can reach HMRC through compatible software.

Contact HMRC before an unpaid amount passes the relevant window

If payment is going to be difficult, arranging Time to Pay before the end of the applicable 30-day or 15-day period can prevent a late-payment penalty from beginning. Interest can continue, but an agreed plan changes the penalty position and is more useful than waiting for an automatic notice.

A taxpayer can appeal a penalty where there is a reasonable excuse. The decision letter explains the route and deadline. Keep the facts and supporting evidence together rather than relying on a general account of what went wrong.

The deadlines calendar separates the quarterly dates for standard and calendar quarters. For the wider reporting process and threshold test, continue with the main MTD guide.

Three common penalty questions

Does the soft landing remove the 2026/27 quarterly deadlines?

The deadlines still apply. HMRC will not add penalty points for late 2026/27 quarterly updates, but all four updates must be submitted before the MTD tax return can be filed.

Will a payment a few days late always create a financial penalty?

The published first-year treatment gives 30 days to pay in full or agree a plan before a late-payment penalty applies. Later years use a 15-day window. Interest can run from the original due date even when no financial penalty has yet been charged.

Can a penalty be challenged?

Yes. HMRC provides an appeal route, and a reasonable excuse can support cancellation. Use the deadline and instructions in the decision letter and provide evidence specific to the missed obligation.