MTD penalties come in two separate flavours, and they work nothing like each other. Miss a filing deadline and you collect a penalty point. Collect four points and you pay £200, then another £200 every time you miss again. Pay your tax late and there are no points at all, just a percentage of what you owe, plus interest running from day one.
This guide covers how both systems work, what the penalty free window looks like in your first year, and where HMRC gives you room to fix a mistake before it costs you anything.
What Happens if You Miss a Quarterly Update or Tax Return Deadline?
Start with the good news, because it applies to the year you are in right now. There are no penalties for missing a quarterly update deadline in the 2026/27 tax year. HMRC has said so plainly. You still have to keep digital records and send the updates, because you cannot file your tax return until you have, but a late quarterly updates this year will not cost you a point.
From 2027/28 onwards, every missed quarterly update earns a point. Your tax return deadline earns points from the start, including for 2026/27.
Here is how the points system work. Miss a deadline, get one point. Your threshold is 4 points. Reach 4 and HMRC charges you £200. After that you stay on 4 points and pay a further £200 for every additional deadline you miss.
So in practice you can miss three deadlines and pay nothing. The fourth one costs £200. The fifth costs another £200, and so on.
The quarterly update deadlines are 7 August, 7 November, 7 February and 7 May. Those dates do not change if you use calendar update periods instead of standard ones. Your tax return and any tax you owe are due by 31 January after the tax year ends. So, for 2026/27 tax year, that is 31 January 2028.
One Point per Deadline, Whatever You Own
This is the rule most articles skip, and it matters a lot if you have more than one type of income.
Say you let a house in Manchester, let a flat in Spain, and do some freelance design work on the side. That is three separate businesses for MTD: a UK property business, a foreign property business, and a self-employment business. Three quarterly updates every quarter, Twelve quarterly updates a year, but still only four deadlines. If all three go in late on the same deadline, you get one penalty point. Not three. So, the worst a full year of missed deadlines can cost you is five points, four from updates and one from the tax return.
HMRC says this directly: one penalty point per deadline, however many businesses filed late. The law backs it up. Your businesses share a single penalty account rather than having one each, and you cannot pick up more than one point in a month however many returns were late.
Your VAT Points Are a Separate Pot
If you are also VAT registered, your MTD for Income Tax points have nothing to do with your VAT points. Four late VAT returns will not push you towards an Income Tax fine, and the reverse is also true. Two separate scoreboards.
Do MTD Penalty Points Expire or Reset?
Yes, but the route depends on whether you have already been fined.
If you are still below 4 points, each point drops off on its own. HMRC removes it 24 months after the missed deadline. Schedule 24 paragraph 7 is slightly more precise: the 24 months run from the first day of the month after the month your failure happened. So a deadline missed on 7 Aug 2027 gives a point that expires at the end of August 2029.
If you have hit 4 points, nothing falls off automatically. You have to clear the whole set at once, and you need to meet two conditions:
File every quarterly update and your tax return on time for 12 months
Send in any quarterly updates and tax returns still outstanding from the previous 24 months
Miss another deadline during those 12 months and the clock starts again from scratch. That is not HMRC being harsh for the sake of it. Schedule 24 paragraph 8 runs the compliance period from the month after your most recent failure, so a fresh failure genuinely resets it.
You can check the removal date for your own points by signing in to your HMRC online services account.
How Much Are the Penalties for Paying Late?
Paying late is priced completely differently. No points, no threshold, no running total. Each late payment is judged on its own, and the cost depends on how long you take.
How late your payment is | 2026/27 tax year | 2027/28 tax year |
|---|---|---|
Up to 15 days | No penalty | No penalty |
16 to 30 days | 3% of the tax still owed at day 15, or no penalty if it is your first year | 4% of the tax still owed at day 15, or no penalty if it is your first year |
31 days or more | 3% of the tax owed at day 15, plus 3% of the tax owed at day 30, plus a 10% annual rate charged daily from day 31 until you pay, for up to 2 years | 4% of the tax owed at day 15, plus 4% of the tax owed at day 30, plus a 10% annual rate charged daily from day 31 until you pay, for up to 2 years |
Three things worth pinning down.
Interest starts on day one. It runs from the first day your payment is late until you pay in full, and it applies even during the penalty free windows above. Late payment interest is set at the Bank of England base rate plus 4%, which has been the position since 6 April 2025. The rate has been 7.75% since 9 January 2026. It accrues daily on whatever is still outstanding, so the longer you leave it the more it costs. Check HMRC's current rate if you are reading this later. |
Your first year gets a longer runway. In your first year under the new penalties you have 30 days from the due date to either pay in full or contact HMRC about a payment plan. After your first year that drops to 15 days. |
You only get the 30 days once. If you volunteered for MTD early and are now required to use it, you have already had your first year. You get 15 days. |
Worked Example
A landlord owes a balancing payment of £6,400 for 2026/27, due on 31 January 2028. This is their first year under the new penalties, so they have 30 days.
Late payment interest at 7.75% on £6,400 works out at roughly £1.36 a day.
What happens | Penalty | Interest | Total extra cost |
|---|---|---|---|
They pay the full £6,400 on day 20. | £0 | About £27 | About £27 |
They contact HMRC on day 25, agree a Time to Pay arrangement and keep to it. | £0 | Interest continues on the outstanding balance until it is paid | Interest only |
They ignore the debt and it is still unpaid on day 40. | £192 (3% of £6,400) at day 15, plus another £192 at day 30, plus the 10% annual penalty from day 31 | About £54 | About £438, and the daily 10% penalty continues to increase until the debt is cleared |
These figures are illustrative. Your own position depends on your specific liability, the date you pay, and the interest rate in force at the time.
What if You Cannot Pay Your Tax Bill on Time?
Contact HMRC as soon as you know you cannot pay. What matters is not just making contact but putting forward a Time to Pay proposal.
If HMRC later agrees a Time to Pay arrangement and you keep to it, the late payment penalty position is protected from the date you made the proposal, not simply from the date the agreement is finalised.
Schedule 26 paragraph 6 of the Finance Act 2021 is important here. If a Time to Pay agreement is eventually made as a result of proposals you put to HMRC before the end of the 15-day period, the first penalty does not arise. The agreement itself can be concluded later. If you put proposals forward between day 16 and day 30, the first 3% penalty may already be in play, but you can prevent the further 3% day-30 penalty if the arrangement is made and kept.
Break the arrangement and that protection can be lost.
What HMRC Actually Looks At
HMRC assesses whether a plan is affordable. You will be asked about your income, your regular outgoings, and any savings or assets, and HMRC will expect you to use savings to reduce the debt as far as you reasonably can. In practice you are usually asked to pay around half of what you have left each month after rent, food, bills and fixed commitments.
To set a plan up you need the reference number for the tax you cannot pay, UK bank details you are authorised to set up a Direct Debit on, and a picture of your income and spending.
There is no fixed maximum length. HMRC is explicit that a payment plan has no time limit, and how long yours runs depends on the size of the debt and what you can afford. Smaller amounts can often be arranged through HMRC's online payment plan service.
And if another tax bill lands while a plan is running, ring HMRC. You may be able to fold it into the existing plan.
What if You Think an MTD Penalty Is Wrong?
You have three routes, and they are not the same thing.
Reasonable excuse
If you had a reasonable excuse for the failure, you should not be liable to the penalty. Two limits are written into the law. Running out of money is not a reasonable excuse unless it was caused by events outside your control. Relying on somebody else to file or pay is not a reasonable excuse unless you took reasonable care to make sure it happened. Handing your records to an agent and never checking is unlikely to be enough. If your excuse ends, you are treated as still having it provided you fix the problem without unreasonable delay.
Special reduction
HMRC can reduce a late payment penalty because of special circumstances. Being unable to pay is specifically excluded from counting as a special circumstance, so this is a narrow route.
Appeal
HMRC writes to you whenever it issues a penalty point, a £200 penalty or a late payment penalty, and the notice explains how to appeal. Appeals run in the same way as an appeal against a tax assessment. They can go to the First-tier Tribunal, which can uphold the penalty, cancel it, or replace HMRC’s decision with its own. Further appeals may be possible to the Upper Tribunal on points of law.
Two deadlines cut the other way and are worth knowing. Once a penalty is assessed, you normally have 30 days from the date of the notice to pay it. HMRC is on a clock too: for a quarterly filing obligation, it must usually award a penalty point within 11 weeks of the failure, and a late payment penalty must generally be assessed within 2 years of the payment due date.
How to Avoid MTD Penalties in the First Place
Most MTD penalties are not tax failures. They are admin failures. Nobody sets out to miss 7 August. They just get to the end of July with three months of bank statements, agent statements and receipts sitting in a pile.
Four habits do most of the work.
