What Are MTD Penalty Points?
The new way HMRC punishes late submissions - not an instant fine for every slip, but points that build to a £200 charge once you cross a threshold.
- What Are MTD Penalty Points?
- Penalty points are HMRC's points-based system for late submissions. Each late return or update earns one point; when your points reach a threshold (set by how often you file), a fixed £200 penalty is charged, and a further £200 applies for each subsequent late submission while you remain at the threshold.
Penalty points reform how HMRC punishes lateness. The old system fined you automatically for a single late submission; the points-based system, already live for VAT and arriving with Making Tax Digital for Income Tax, is more forgiving of the occasional slip but bites hard on repeat offenders. You collect a point for each late submission, and only when those points reach a threshold does a £200 penalty land.
Why HMRC Changed the System
The previous regime fined a single missed deadline the same as a habitual one, which felt disproportionate for an otherwise compliant business that slipped once. The points system separates the two behaviours. Genuine one-off lateness gathers a point that quietly expires; persistent lateness builds towards a penalty. With Making Tax Digital introducing quarterly reporting, the volume of submissions rises sharply, so a fairer, frequency-aware approach was needed.
The thresholds are tuned to filing frequency. The more often you are expected to file, the more points you are allowed before the penalty bites.
- Penalty point threshold
- The number of points at which a £200 penalty is charged. It is 5 points for those who file monthly, 4 for quarterly filers (including MTD for Income Tax quarterly updates), and 2 for annual filers.
How Points Accumulate and Expire
Each late submission adds one point. Below the threshold, individual points expire automatically after two years (measured from the month after the late submission), so an isolated slip clears itself. Once you hit the threshold, the rules tighten: points stop expiring automatically, the £200 penalty applies, and every subsequent late submission brings a further £200. To wipe the slate clean at that stage you must both submit all outstanding returns and complete a period of fully on-time submissions - 24 months for quarterly filers.
A Worked Example for 2026/27
Take Owen, a sole trader reporting quarterly under MTD for Income Tax (threshold: 4 points). He misses four quarterly update deadlines across the period.
| Late submission | Points | Charge |
|---|---|---|
| Q1 update late | 1 | £0 |
| Q2 update late | 2 | £0 |
| Q3 update late | 3 | £0 |
| Q4 update late | 4 (threshold reached) | £200 |
| Next update late | stays at 4 | £200 |
Owen pays nothing for the first three slips, but the fourth crosses the threshold and triggers the £200 penalty. Any further late update while he remains at four points costs another £200 each time. To reset, he must file everything on time for 24 months. Note that late payment of the tax is charged separately - see the late filing and payment calculator.
4 points
Quarterly threshold
£200
Penalty at threshold
+£200
Each further late update
Points Are Not the Whole Story
Crucially, penalty points cover late submissions only. Paying your tax late is dealt with by a separate late-payment penalty and by daily interest - the points system does not touch them. So under MTD you can, in theory, be on time with payment but accruing points for late updates, or vice versa. Each quarterly update period is also assessed in its own right, which is why falling behind across several quarters is what drives you towards the threshold.
“The shift to points rewards the consistently punctual and isolates the persistently late. One missed quarterly update under MTD is a learning moment; four is a £200 bill - and the meter keeps running until you string together two clean years.”
Related terms
- Making Tax Digital - the regime bringing quarterly updates and the points system to Income Tax.
- Late filing and payment calculator - estimate submission and payment penalties together.
- TapTax blog - guides on MTD, quarterly updates, and avoiding penalties.
People also ask
When does the penalty points system start for Income Tax?
It applies as Making Tax Digital for Income Tax is rolled out from April 2026, beginning with sole traders and landlords whose qualifying income is above the threshold. Late quarterly updates and the final declaration will earn points under the same framework that already governs VAT submissions.
Can I appeal a penalty point?
Yes. If you had a reasonable excuse for a late submission - such as a serious illness or an HMRC system failure - you can appeal the point, and the associated £200 penalty if one was charged. As with other penalties, you must still submit the outstanding return once the excuse ends.
Do penalty points reset to zero?
Below the threshold, each point expires individually after two years of staying compliant. At the threshold, points do not expire one by one; instead you clear all of them by submitting everything due and filing on time for a sustained period - 24 months for quarterly filers, shorter for more frequent ones.
Self-employed? Here is when Making Tax Digital applies
If you are self-employed, Making Tax Digital for Income Tax applies to you from 6 April 2026 if your qualifying income is over £50,000, and from 6 April 2027 if it is over £30,000. TapTax keeps your digital records and sends your quarterly updates to HMRC, and it is HMRC-recognised.
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Frequently asked questions
How do MTD penalty points work?
Each time you submit a return or update late, you receive one penalty point. Points accumulate until you reach a threshold set by your filing frequency. The threshold is 5 points for monthly filers, 4 for quarterly filers, and 2 for annual filers. Reaching the threshold triggers a fixed £200 penalty, and every further late submission while at the threshold adds another £200.
How do I get rid of penalty points?
Points expire individually after two years if you stay below the threshold. Once you are at the threshold, you clear all points only by completing a sustained period of on-time submissions (24 months for quarterly filers) and by submitting all outstanding returns. Maintaining a clean filing record resets the slate.
Do penalty points apply to Making Tax Digital for Income Tax?
Yes. The points-based late submission regime already applies to VAT and is being extended to Income Tax Self Assessment as Making Tax Digital is rolled out from April 2026. Late quarterly updates and the final declaration will earn points under the same framework, with late payment penalties charged separately.
Sources
Official guidance on GOV.UK.