MTD Penalties Explained: Points, Fines, and the 2026 Grace Period

One of the biggest anxieties around Making Tax Digital is penalties. What if you submit late? What if you get the numbers wrong? Here's how the system actually works.

The new points-based system

HMRC has replaced fixed penalties with a points-based system for late submissions. Here's how it works:

• Each late quarterly submission earns you 1 penalty point
• The threshold for quarterly submissions is 4 points
• Once you hit 4 points, you receive a £200 fine
• Every subsequent late submission also incurs a £200 fine

How to clear penalty points

Points don't last forever. They expire after a period of compliance:

• Submit all required updates on time for 24 months
• Your points reset to zero

The 24-month clock starts from the month after your most recent late submission.

The 2026/27 grace period

Good news: HMRC has confirmed a soft landing period for the first year. For the 2026/27 tax year, late submission penalties will not be applied for quarterly updates. This gives everyone time to adjust to the new system.

However, this grace period does not apply to:

• Late payment of tax (interest and late payment penalties still apply)
• The Final Declaration
• Subsequent tax years (2027/28 onwards, normal penalties apply)

What if you submit wrong figures?

Quarterly updates are cumulative, meaning each submission replaces the previous one for that tax year. If you made an error in Q1 and notice it in Q2, your Q2 submission (with corrected year-to-date figures) effectively fixes it.

You can also resubmit for any quarter at any time before the Final Declaration. There's no penalty for amending quarterly figures.

Late payment penalties

Separate from submission penalties, if you owe tax and don't pay on time:

• Interest accrues from the due date
• A first late payment penalty applies after 15 days
• A second late payment penalty applies after 30 days

The practical takeaway

Don't panic. The grace period means you have a full year to get comfortable with the process. The quarterly submissions themselves take minutes. Keep your records up to date, submit on time, and the penalty system will never affect you.