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 the 2026 to 2027 tax year, 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

GOV.UK puts the concession plainly: “There are no penalties for missing a quarterly update deadline for the 2026 to 2027 tax year.” The updates themselves are still required, though, and GOV.UK goes on to say: “You still need to keep digital records and send quarterly updates before you can submit your tax return.” So the concession takes away the penalty for a late quarterly update in that year, but it does not take away the filing task underneath it.

For tax years after 2026 to 2027, each missed quarterly deadline adds one penalty point. A taxpayer with more than one business still receives no more than one point for the same deadline, even if updates for both businesses are late. The tax return deadline sits inside the points system too, and it is not part of the quarterly-update concession, so a late return for the 2026 to 2027 tax year can still add a point.

The financial penalty begins when the points threshold is reached

The penalty point threshold is four points. Reaching it brings a £200 penalty, and each further submission deadline missed after that brings another £200 penalty. HMRC sends a letter whenever someone gets a late payment penalty, a late submission penalty point or a £200 late submission penalty, which is worth knowing because the letter is also where HMRC explains how to appeal.

Below the threshold, each point is removed automatically 24 months after the deadline that was missed. Once the threshold has been reached, points no longer drop off one at a time. Clearing them all takes 12 months of sending quarterly updates and tax returns on time, and any outstanding updates or returns from the previous 24 months have to be sent as well. In practice, that means an occasional slip fades on its own, while a run of missed deadlines takes a sustained stretch of on-time filing to clear.

Late-payment penalties use elapsed days and percentages

The payment rules do not use points, and they apply to each late payment separately. In a taxpayer’s first year under the new penalties, they have 30 days from the payment due date to pay in full or contact HMRC to set up a payment plan before penalties start. After the first year, that window reduces to 15 days. The longer window is only given once, so someone who volunteered for MTD and is now required to use it continues with 15 days. If you are volunteering rather than required to use MTD, GOV.UK sets out separate rules for volunteers, which the guide to signing up for MTD voluntarily explains.

For tax due for the 2026 to 2027 tax year and paid 31 days or more late, the penalty is 3% of the tax owed at day 15 and 3% of the tax owed at day 30. On top of that, a charge at an annual rate of 10% runs daily on the outstanding amount from day 31 until the tax is paid, or for up to two years. Paying between day 16 and day 30 brings only the day-15 percentage, and nothing at all in a taxpayer’s first year. For the 2027 to 2028 tax year, the percentages become 4% at day 15 and 4% at day 30, with the same daily charge after that.

GOV.UK says these penalties apply to payments not paid in full by the relevant due date, including “a balancing payment for an outstanding amount on your tax bill” and “amounts due following an amendment or assessment on your tax return”. It is equally clear that they do not apply to payments on account. Late payment interest is separate again, and HMRC charges it from the first day a payment is late until it is paid in full.

Interest starts before a financial penalty may appear

That interest is charged at the rate HMRC publishes in its interest rates for late and early payments. GOV.UK says there are no changes to how late payment interest works, so anyone who has paid a Self Assessment bill late before will recognise it. Because it starts on the first day a payment is late, interest can build up during the 30-day or 15-day window, before any late payment penalty has been charged.

Making Tax Digital changes the reporting rhythm rather than the familiar Self Assessment payment calendar. GOV.UK gives 31 January after the end of the tax year as the deadline for both the tax return and any tax owed, and payments on account, where they apply, still fall due on 31 January and 31 July. The quarterly updates do not create 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 to 2027 quarterly concession does not turn paper-only records into a compliant system. GOV.UK’s general guidance on penalties says HMRC may charge a penalty if you send a tax return late, pay your tax late, send an inaccurate return or fail to keep adequate records, and the quarterly concession does not change that.

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, the useful step is to contact HMRC as soon as possible, and well before the 30-day or 15-day window ends. GOV.UK says: “If a payment plan is agreed and you make the payments, penalties will be paused from the date you contacted us.” A penalty can still be charged if a payment plan cannot be agreed or you do not follow the agreed plan, and interest keeps running until the tax is paid in full, so a plan is worth setting up early rather than waiting for a letter.

GOV.UK sets out the appeal route simply: “If you do not agree with the penalty point or penalty you can appeal. Your letter will tell you how to do this.” Its general guidance on disagreeing with a penalty adds: “If you disagree with the penalty, you’ll need to explain why to HMRC. For example, if you have a reasonable excuse or you think the penalty is wrong.” Keep the facts and supporting evidence together rather than relying on a general account of what went wrong. Beyond appeals, GOV.UK notes one more route: “In some exceptional circumstances, such as insolvency, HMRC may cancel a penalty or penalty point, or remove all penalty points.”

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. If it is your first quarterly update, the first quarterly update guide covers what to send, and the MTD and your January return guide separates that update from the ordinary Self Assessment return that can fall due in the same month. If your circumstances change and you become exempt, the guide to opting out of MTD sets out what GOV.UK says happens to your penalties.

Three common penalty questions