MTD penalty points: how the new system works in 2026

Introduction to MTD penalty points

As of 2026, HMRC has revamped the way penalties are issued under Making Tax Digital (MTD) by introducing a penalty points system. This change replaces the previous flat penalty model with a more structured arrangement that aims to reward consistent compliance while penalising repeated failures to submit on time.

How penalty points accumulate

A point is assigned for every missed submission of tax returns under the MTD rules. The threshold for penalties differs based on the frequency of submissions:

• Annual submissions: 2 points
• Quarterly submissions: 4 points
• Monthly submissions: 5 points

Once you reach the threshold, a penalty is triggered.

Penalties upon reaching the threshold

Once you hit the designated points threshold, you incur a £200 fixed penalty. Any subsequent failure results in an additional £200 penalty. Late payments also attract a separate penalty of £200 plus daily interest at a rate 2.5% above the Bank of England base rate.

Clearing your points record

Points reset after a sustained compliance period: two years for annual, one year for quarterly, or six months for monthly submissions without missing or late filings.

MTD for Income Tax Self Assessment (ITSA)

The MTD ITSA becomes mandatory for sole traders and landlords with incomes over £50,000 from 6 April 2026, and those earning over £30,000 will be included in April 2027. Quarterly submissions of income and expenses will be required.

Tools for compliance

To help with compliance, make use of our self-assessment calculator and VAT calculator. These tools assist in staying organised with your submissions.

For further information, visit the gov.uk MTD page or consult HMRC guidance.

Practical examples of penalty scenarios

Let's take a closer look at how the penalty points system works with real-life examples:

• Example 1: Quarterly submissions — John, a self-employed electrician, submits his tax return quarterly. He misses his January and April deadlines, accumulating 2 penalty points. By July, he misses another deadline, reaching 3 points. He is now at risk of being penalised if he misses another deadline.
• Example 2: Monthly submissions — Sarah is a landlord who submits monthly. She misses submissions in February, March, and May, accumulating 3 points. If she misses two more, she will face a £200 penalty.

Step-by-step guide to avoiding penalties

Compliance can seem daunting, but following a structured approach can help prevent penalties:

1. Set reminders: Use digital calendars or apps to remind you of upcoming deadlines.
2. Organise records: Keep all necessary documents and records in one place for easy access.
3. Use digital tools: Utilise tools like our day rate calculator and invoice generator to streamline your financial management.
4. Consult professionals: If in doubt, seek advice from accountants or tax professionals.
5. Review submissions: Double-check all information before submission to avoid errors.

Benefits of compliance

Compliance not only helps avoid penalties but also offers other benefits:

• Financial clarity: Regular submissions provide a clearer picture of your financial standing.
• Trust with HMRC: Consistent compliance builds trust and may ease future interactions with HMRC.
• Business growth: Efficient tax management allows you to focus on growing your business.

Resources for further learning

To expand your understanding, consider the following resources:

• Self Assessment on gov.uk — Comprehensive guidance on self-assessment and tax obligations.
• Making Tax Digital collection — In-depth resources and updates related to MTD.
• VAT education manual — Detailed HMRC guidance on VAT-related matters.

FAQs

1. What is the point system based on?

   Each missed tax submission earns a point. Points lead to penalties when thresholds are met.

2. How can I avoid penalties?

   Ensure timely submissions and maintain a sustained compliance period to reset points.

3. When does MTD ITSA begin for me?

   If you earn over £50,000, it's mandatory from April 2026; for earnings over £30,000, from April 2027.

4. What is the interest rate on late payments?

   Late payments incur daily interest at 2.5% above the Bank of England base rate.

5. What happens if I accumulate points but then comply for long enough?

   Your points reset after a sustained compliance period, which varies based on your submission frequency.