MTD penalties: how four missed deadlines turn into a £200 bill

The old system fined you as soon as a return was late. The new one is gentler with a one-off slip and firmer with a habit. It applies to MTD for Income Tax, and it already applies to VAT.

Late submission: points first

For each quarterly update or tax return deadline you miss, you get one penalty point, however many businesses you have. When you reach four points you pay a £200 penalty, and another £200 for each deadline you miss while you are at the threshold. Your points for Income Tax are kept separate from any points for VAT.

Late payment: a cost that grows

Late payment penalties are not points-based. For the 2026/27 tax year, tax unpaid after 15 days costs 3% of the amount then outstanding, and another 3% of whatever is still unpaid at day 30. From day 31, a further penalty accrues at 10% a year. For 2027/28 the two fixed steps rise to 4%. Late payment interest is charged on top, from the first day.

In your first year of the new penalties, HMRC allows 30 days before late payment penalties start, rather than 15. Agreeing a payment plan before a penalty applies pauses them.

Keeping clear

• Put every quarterly deadline in the calendar a week early.
• If you cannot pay in full, contact HMRC about a payment plan before day 15.
• Keep a separate tax savings account, topped up each month from the estimate in your software.