MTD Penalty Points Explained: How to Avoid Fines

Under Making Tax Digital, missing a submission deadline earns a penalty point rather than an automatic fine. For quarterly submissions, reaching 4 points triggers a £200 penalty, with another £200 for each further late submission while you remain at the threshold. Paying tax late is penalised separately.

The points system is designed to treat an occasional slip lightly and persistent lateness more seriously. It already applies to VAT, and it applies to MTD for Income Tax as sole traders and landlords join. This guide explains how points build up, how they expire, and how to keep your record clean.

Key takeaways

• Each late submission adds one penalty point; early points carry no charge.
• The quarterly threshold is 4 points, triggering a £200 penalty.
• Points below the threshold generally expire after 24 months.
• At the threshold, you need a period of full compliance to reset.
• Late payment has its own penalties and interest, separate from points.

What a penalty point is

A penalty point is a mark HMRC records against you when a submission — such as an MTD quarterly update — is not made by its deadline. Points build up towards a threshold that depends on how often you have to submit. Only once you reach that threshold does a financial penalty apply. The same approach is used for VAT, as described on GOV.UK's VAT late submission penalties page. HMRC has announced some easements for the first years of MTD for Income Tax, so check its current guidance on GOV.UK to see which apply to you.

Points thresholds by submission frequency

MTD for Income Tax quarterly updates fall into the quarterly row. How the final declaration is treated alongside them is set out in HMRC's guidance, so check GOV.UK for the current position rather than relying on the table alone.

How points expire and reset

While you are below the threshold, each point generally expires 24 months after the month following the late submission, as long as you keep meeting your deadlines. Once you reach the threshold, points do not simply expire. You need a period of compliance: meeting every deadline for a set period (12 months for quarterly submitters) and having made all submissions due in the previous 24 months. Only then are your points reset to zero.

Late payment is separate

Penalty points concern submissions, not payments. If tax itself is paid late, HMRC can charge late payment penalties that increase the longer the tax is outstanding, plus interest. The percentages and timings are set out on GOV.UK and can change, so check the current rules. Contacting HMRC early about a payment plan can reduce these penalties.

What counts as a reasonable excuse

HMRC can cancel a point or a penalty if you had a reasonable excuse for missing the deadline and put things right promptly once the problem ended. Examples HMRC has accepted in general guidance include serious illness, the death of a close relative shortly before the deadline, unexpected failures of HMRC's online services, and events such as fire or flood that stopped you filing.

Things that are not usually accepted include relying on someone else who let you down, not knowing about the deadline, finding the software difficult, or being too busy. If you think you have a genuine excuse, ask HMRC to review the decision within the time limit given in the notice and explain what happened with evidence where you can. Filing the missing update as soon as possible strengthens your case, because HMRC expects the failure to be corrected without unreasonable delay.

Checklist: keeping your points at zero

1. Diarise every deadline: see our quarterly update calendar.
2. Keep records monthly so each quarter is a short summary, not a catch-up.
3. Submit a few days early to allow for software or connection problems.
4. Check each submission was accepted and keep the confirmation.
5. Review your penalty record in your HMRC online account from time to time.
6. Set up an agent to act for you if you are often away or busy at quarter end.
7. Appeal promptly if a point was caused by something outside your control.

Worked example (illustrative example)

"Leila", an invented illustrative example, is a self-employed photographer who must make quarterly MTD updates. In her first year she misses one deadline while travelling and receives 1 point. No penalty is charged. The next year she misses two more after a busy season: 3 points in total, still below the threshold of 4.

Worried about reaching the threshold, she asks an accountant to handle her updates and switches to monthly bookkeeping. She makes every submission on time from then on. Her first point expires after its 24-month period, and the others follow in turn, without her ever paying a submission penalty. Had she missed one more deadline, she would have reached 4 points and a £200 penalty. The person and events are invented to show how the system works.

Common mistakes

• Treating a first point as harmless and letting more build up.
• Confusing submissions and payments: points do not cover late tax.
• Assuming points vanish automatically once you are at the threshold.
• Submitting at the last minute and hitting a software problem.
• Not appealing when there was a genuine reasonable excuse.

Let us keep your MTD record clean

Our MTD compliance service starts from £49 per month and covers every quarterly update and your final declaration, so deadlines are handled for you. If you are joining in April 2027, read our six-month preparation plan; landlords should also see MTD for landlords.

Already have a point, or worried about the first quarter? Get in touch or see our pricing.