Making Tax Digital for Income Tax has brought more than just quarterly digital record keeping. It has also brought a completely new way of managing MTD penalties late submission cases. From 6 April 2026, HMRC changed the old automatic fine system for Self Assessment with a points based penalty regime. This is first applicable for sole traders and landlords brought into MTD for Income Tax and then a full roll out to all Self Assessment tax payers from 6 April 2027.
This article discusses how the new points system works and what it means for MTD penalties late submission and late payment.
Why HMRC Introduced a Points System?
The old regime treated every late filer in the same way. Miss the 31 January Self Assessment deadline once even by a day and an automatic fine of £100 landed without checking your history. It is the same penalty a consistently late filer would receive. HMRC has taken into consideration that a large share of the penalties issued under the old system were on people who were widely complaint but missed a single deadline for a genuine reason.
The points based model is created to be more accurate. It knows to identify between an occasional slip and a pattern of constant non compliance. Thus it gives taxpayers room to make a single mistake without an immediate financial penalty while still penalizing those who continuously miss deadlines.
How MTD Penalties Late Submission Points Work?
Each time you miss a submission deadline, you receive one penalty point. Points build up on a rolling basis rather than triggering an instant fine. Only once you reach a set threshold does HMRC issue a fixed financial penalty and every MTD penalties late submission case after that threshold also triggers a further fixed penalty.
| Submission frequency | Points threshold | Penalty once reached |
| Quarterly (most MTD for Income Tax users) | 4 points | £200, then £200 per further late submission |
| Annual (e.g. the final declaration) | 2 points | £200, then £200 per further late submission |
In practice, this means a taxpayer submitting quarterly updates can miss one or two deadlines across a couple of years without facing a financial penalty, provided they don’t cross the four-point threshold. Cross it, and a £200 penalty applies immediately, followed by a further £200 for every subsequent late submission while at or above the threshold.
How Points Expire?
Points aren’t permanent. Provided you stay below the penalty threshold, individual points automatically expire after 24 months. Once you reach or exceed the threshold, though, that automatic 24-month expiry stops applying, and a different reset mechanism takes over.
- Below the threshold: each point simply drops off 24 months after the deadline it relates to.
- At or above the threshold: the points total resets to zero only after a period of consistent good compliance, four consecutive on-time quarterly submissions for quarterly filers, or two consecutive on-time returns for annual filers.
- All returns due in the two years before the reset date must also have been submitted, even if they were once late.
The First-Year Soft Landing
Recognising that MTD for Income Tax is a significant change for sole traders and landlords, HMRC has confirmed a soft landing for the 2026/27 tax year. No penalty points will be awarded for late quarterly updates during that first year. The quarterly updates still have to be submitted, you simply won’t start accumulating points for lateness while you get used to the new process.
This grace period does not extend to the final declaration (the annual return). A late 2026/27 annual return, due by 31 January 2028, will still attract a penalty point in the normal way.
Late Payment Penalties Are Separate
The points system applies to late submissions, it does not cover late payment of tax owed. Late payment penalties sit alongside the points regime and are calculated on a tiered, percentage-based structure rather than points, with interest also charged on any tax paid late from the original due date.
- A short grace period applies after the payment deadline before penalties start to bite; extended to 30 days for the first year of MTD for Income Tax.
- After the grace period, penalties escalate based on how much remains outstanding and for how long.
- Interest accrues separately and continues to run until the balance is paid in full.
Falling Into a Lower Threshold Band
If your circumstances change and your submission frequency moves you into a stricter band, for example your points threshold reduces from four points to two, HMRC applies a proportionate adjustment. Any points you already hold are scaled down so that you are no closer to the new, lower threshold than you were under the old one.
Appealing a Penalty Point or Fine
If you believe a point or penalty has been issued unfairly, you can appeal. Appeals must generally be made online or in writing within 30 days of the penalty notice. A reasonable excuse, such as serious illness, bereavement, or an HMRC system failure, can support an appeal. HMRC will write to confirm any late submission point or £200 penalty, and that letter will explain how to challenge it. In exceptional circumstances, such as insolvency, HMRC also has discretion to cancel individual points or penalties.
How to Stay Ahead of the New Rules?
- Keep digital records up to date throughout the quarter rather than at the last minute, this is a core MTD requirement in its own right.
- Build submission deadlines into a calendar with reminders well before the due date, not just on the day.
- Use MTD-compatible software that flags upcoming quarterly and annual deadlines automatically.
- If you know you’ll miss a deadline, submit as soon as possible afterwards and keep evidence of any reasonable excuse.
- Check your points balance and expiry dates regularly via your HMRC online services account.
How Lexarox Accounts Helps with MTD Penalties Late Submission?
Lexarox Accounts helps clients stay ahead of MTD penalties late submission risk by managing quarterly update deadlines from start to finish. The team tracks every submission date, keeps digital records current throughout the quarter rather than at the last minute, and sends proactive reminders well before deadlines fall due.
If a deadline is ever at risk of being missed, Lexarox Accounts steps in early to minimise points accumulation, and where a penalty point or fine has already been issued, they help assess whether a reasonable excuse applies and manage the appeal process with HMRC on the client’s behalf. This hands-on approach means clients can focus on running their business while Lexarox Accounts keeps their MTD compliance and their points balance, under control.
Lexarox Accounts
Contact Details: 0792 883 0368 | 0747 235 6282
Telephone number: 0208 533 1358
Email: info@lexaroxaccounts.co.uk
Address: Lexarox Accounts MS.128, 203-213 Mare Street, Hackney, London, E8 3JS
Frequently Asked Questions About MTD Penalties Late Submission
1. When does the new MTD penalties late submission points system start?
It applies from 6 April 2026 for sole traders and landlords who are mandated into MTD for Income Tax. The system extends to all remaining Self Assessment taxpayers from 6 April 2027.
2. How many points can I get before I’m fined?
It depends on how often you file. Taxpayers submitting quarterly updates reach the threshold at 4 points; those with annual-only obligations reach it at 2 points. Once you hit the threshold, a £200 penalty applies, and a further £200 is charged for each additional late submission after that.
3. Do I get a penalty point for every late submission, or only after several?
You get one point for every missed deadline from the very first late submission. However, a financial penalty only applies once your points total reaches the relevant threshold, an occasional late submission below the threshold does not, by itself, trigger a fine.
4. Will I be penalised for late quarterly updates in the first year of MTD?
No. HMRC has confirmed a soft landing for the 2026/27 tax year: no penalty points will be issued for late quarterly updates during that year. You must still submit the updates, you simply won’t accumulate points for lateness in that first year. This soft landing does not cover the final annual declaration.
5. Do penalty points ever go away?
Yes. If you stay below the penalty threshold, each point expires automatically 24 months after the deadline it relates to. If you reach or exceed the threshold, that automatic expiry stops, and your points only reset to zero after a period of consistent on-time filing, four consecutive on-time quarterly submissions, or two consecutive on-time annual returns.
6. Does the points system cover late payment of tax as well as late filing?
No. Points apply only to late submissions. Late payment of tax is dealt with separately through a tiered, percentage-based penalty structure, plus interest on the outstanding amount from the original due date. A short grace period, 30 days in the first year of MTD for Income Tax, applies before late payment penalties start.
