HMRC Late Filing Penalties Under MTD
Understand HMRC's points-based penalty system for late MTD submissions. Learn how penalty points work, fine amounts, and how to appeal or avoid penalties.
- HMRC uses a points-based system where each late quarterly submission earns one penalty point
- Once you hit four penalty points, you receive a £200 fine, and every subsequent late submission also costs £200
- Late payment penalties are separate and calculated as a percentage of unpaid tax
- Points expire after 24 months of on-time submissions once you drop below the threshold
HMRC Late Filing Penalties Under MTD
Nobody wants a letter from HMRC with a fine attached. Under Making Tax Digital, the penalty system has changed significantly from the old Self Assessment regime. The new system is more gradual (one missed deadline will not immediately cost you money) but letting things slide can quickly become expensive.
Here is exactly how the new penalty regime works, what it costs, and how to make sure you never get caught out.
The Old System vs the New System
Under the old Self Assessment rules, missing the 31 January deadline by even one day triggered an automatic £100 penalty. Miss it by three months and the fines escalated quickly.
The new MTD penalty system is different. It uses a points-based approach that gives you some breathing room for genuine mistakes, but penalises persistent lateness.
- Penalty Point
- A point added to your HMRC record each time you submit a quarterly update, End of Period Statement, or Final Declaration late. Points accumulate over time. Once you reach the penalty threshold for your submission frequency, a £200 financial penalty is triggered.
How the Points-Based System Works
Step 1: Late submission earns a point
Every time you miss a quarterly filing deadline, HMRC adds one penalty point to your record. No fine is issued for the first few late submissions, just points.
Step 2: Points accumulate toward a threshold
The penalty threshold depends on how often you are required to file:
| Filing frequency | Penalty threshold |
|---|---|
| Annual | 2 points |
| Quarterly | 4 points |
| Monthly | 5 points |
For most sole traders under MTD, you file quarterly, so your threshold is 4 points.
Step 3: Reaching the threshold triggers a fine
Once you hit 4 penalty points, HMRC issues a £200 financial penalty. This is the first time you actually pay anything.
Step 4: Every subsequent late submission costs £200
After reaching the threshold, there is no more grace period. Each additional late submission triggers another £200 penalty immediately.
Step 5: Points can expire
Here is the good news. Penalty points are not permanent. They expire if you meet both of these conditions:
- You are below the penalty threshold (have not yet reached 4 points)
- You have submitted on time for 24 consecutive months
If you have already reached the threshold and been fined, you need to file on time for 24 months to reset your points back to zero.
The new penalty regime is designed to be fairer. Occasional mistakes will not result in immediate fines, but those who repeatedly miss deadlines will face escalating consequences.
The following table summarises the full penalty structure at a glance:
| Penalty Type | Trigger | Amount |
|---|---|---|
| Late submission | Each missed quarterly deadline | 1 penalty point (no fine until threshold) |
| Threshold penalty | Reaching 4 points (quarterly) | £200 fine |
| Subsequent late | Each late filing after 4 pts | £200 per occurrence |
| Late payment (15d) | Tax unpaid after 15 days | 2% of outstanding tax |
| Late payment (30d) | Tax unpaid after 30 days | Additional 2% of outstanding tax |
| Late payment (ongoing) | Tax unpaid beyond 30 days | 4% per year on remaining balance |
| Points reset | 24 months of on-time filing | All points return to zero |
A Practical Example
Imagine you are a sole trader who starts MTD in April 2026:
- Q1 2026-27: Filed on time, 0 points
- Q2 2026-27: Filed late, 1 point
- Q3 2026-27: Filed on time, 1 point (still)
- Q4 2026-27: Filed late, 2 points
- Q1 2027-28: Filed late, 3 points
- Q2 2027-28: Filed on time, 3 points
- Q3 2027-28: Filed late, 4 points, £200 penalty issued
- Q4 2027-28: Filed late, 5 points, another £200 penalty
In this scenario, you have paid £400 in penalties across two late submissions after reaching the threshold. If you then file on time for the next 24 months, your points reset to zero.
Late Payment Penalties
Late submission penalties and late payment penalties are two separate things. Even if you file your quarterly updates on time, you can still face penalties for paying your tax bill late.
Here is how late payment penalties work:
First 15 days
No penalty. This is a grace period.
After 15 days
A 2% charge on the tax outstanding at that point.
After 30 days
An additional 2% charge on tax still outstanding (so 4% total has been charged at this point, applied to different balances).
After 30 days (ongoing)
4% per year (annualised daily rate) on any balance that remains unpaid. This is effectively interest that accrues daily until you pay.
Example
You owe £5,000 in tax and pay 45 days late:
- Day 16: 2% of £5,000 = £100
- Day 31: 2% of £5,000 = £100 (assuming no partial payment)
- Days 31-45: ~£8.22 in daily interest (4% annual rate on £5,000 for 15 days)
- Total penalties: approximately £208.22
The message is clear: pay on time, or as soon as possible if you cannot meet the deadline.
If you want a quick estimate before speaking to HMRC, use our Late Filing Penalty Calculator. It gives a practical penalty and interest estimate, so you can prioritise what to pay first.
Here is how the old Self Assessment penalties compare to the new MTD regime:
| Time Late | Old Self Assessment Penalty | New MTD Penalty |
|---|---|---|
| 1 day | £100 automatic fine | 1 penalty point (no fine) |
| 3 months | £10/day up to 90 days (max £900) | Points continue accumulating |
| 6 months | 5% of tax owed or £300 (whichever is greater) | £200 fine at 4 points threshold |
| 12 months | Further 5% of tax owed or £300 | £200 per late submission ongoing |
| Payment 15 days late | N/A (separate regime) | 2% of outstanding tax |
| Payment 30 days late | N/A | Additional 2% of outstanding tax |
The cost of non-compliance under MTD is not just financial. Persistent late filing erodes trust with HMRC and can increase the likelihood of a formal enquiry into your affairs.
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How to Appeal an HMRC Penalty
If you receive a penalty you believe is unfair, you have the right to appeal. HMRC accepts appeals on the grounds of reasonable excuse, meaning circumstances beyond your control that prevented you from filing or paying on time.
What counts as a reasonable excuse
- Serious illness or bereavement affecting you or a close family member
- Unexpected hospital stay
- Fire, flood, or natural disaster affecting your home or business
- HMRC's own systems being unavailable (documented outages)
- Your software provider experiencing technical failures (with evidence)
What does NOT count as a reasonable excuse
- Forgetting the deadline
- Being too busy
- Finding the software confusing
- Not knowing about MTD (HMRC considers this your responsibility)
- Relying on someone else who let you down (unless you took reasonable care)
How to appeal
- Online: Through your HMRC online account
- By post: Write to HMRC explaining your circumstances with supporting evidence
- Deadline: You must appeal within 30 days of the penalty notice
If HMRC rejects your appeal, you can request a review by a different HMRC officer, or escalate to the First-tier Tribunal (Tax Chamber).
How to Avoid Penalties Completely
Avoiding MTD penalties is straightforward if you build the right habits:
1. Use software with deadline reminders
MTD software like TapTax sends notifications before each quarterly deadline. You should never be surprised by a due date.
2. Keep records throughout the quarter
Spending a few minutes each week logging transactions means your quarterly update is ready to submit with minimal effort when the deadline arrives. Do not let three months of expenses pile up.
3. File early
There is no benefit to waiting until the deadline. File in the first week after each quarter ends. This gives you a buffer for any unexpected issues.
4. Set up direct debits for tax payments
HMRC allows you to set up direct debits for tax payments, including payments on account. Automating payment removes the risk of forgetting.
5. Keep a cash reserve for tax
A common reason for late payment is not having the money available. Setting aside 25-30% of your income as it comes in ensures you can always pay on time.
For proactive planning, pair this with the Quarterly Payment Planner so you know exactly how much to set aside each month.
6. File even if your records are incomplete
A late submission earns a penalty point. An inaccurate submission that you later correct does not. If you are running out of time, it is better to submit your best estimate and amend it later than to miss the deadline entirely.
Ready to simplify your tax filing?
Join the waitlist and be the first to know when TapTax launches.
