HMRC penalty points for MTD: how the system works in 2026

Making Tax Digital for Income Tax introduces a points-based late filing penalty system that replaces the previous flat-rate Self Assessment penalties. Understanding how it works — and what the 2026–27 transitional relief actually covers — matters for anyone now in scope for MTD.

How the points system works

Under the points system, each late submission earns one penalty point. Points accumulate over time. When you hit the threshold for your submission frequency, a £200 financial penalty is issued — and a further £200 is charged for every late submission after that, until you clear your points.

Threshold by submission frequency

For MTD for Income Tax (quarterly submissions), the threshold is 4 points. You must be late on four separate quarterly updates before the first £200 penalty fires. This is by design — the system allows for occasional lapses without immediate financial consequence, while penalising persistent non-compliance.

A worked example

James is a freelance consultant using MTD from April 2026. He's been broadly compliant but occasionally late:

• Q2 2026–27 submitted 2 weeks late → 1 point (total: 1)
• Q1 2027–28 submitted 1 week late → 1 point (total: 2)
• Q3 2027–28 submitted 3 weeks late → 1 point (total: 3)
• Q1 2028–29 submitted 1 day late → 1 point + £200 penalty (total: 4 → threshold hit)
• Q2 2028–29 submitted on time → no change (but points remain)
• Q3 2028–29 submitted late → 1 point + £200 penalty (now at 5 points)

Once at the threshold, every late submission incurs a further £200, not just the one that triggered it.

How points expire

Penalty points do not stay with you permanently — they expire after a period of full compliance. To reset your points to zero:

1. You must submit all your required returns (quarterly updates + final declaration) on time for the relevant period
2. The compliance period is:
   • 24 months of continuous full compliance for quarterly filers (MTD ITSA)
3. Once the compliance period is complete, all accumulated points are wiped

The clock for the compliance period only starts running once all outstanding late submissions have been filed. Points cannot be reduced gradually — it's all-or-nothing based on the full compliance window.

The 2026–27 transitional relief

HMRC has confirmed transitional relief for the first year of MTD (tax year 2026–27). Under this relief:

• No penalty points will be issued for late quarterly updates in 2026–27 (Q1–Q4 covering April 2026 to April 2027)
• The transitional relief applies to the quarterly update submissions only

What the transitional relief does NOT cover

• Late payment of tax: Payment penalties are entirely separate and are not covered by transitional relief. Tax owed for 2026–27 is due by 31 January 2028, and late payment penalties apply from day 16 after that date.
• Failure to notify: If you haven't registered for MTD when required, the failure-to-notify penalty regime applies separately.
• Inaccurate returns: Penalties for submitting inaccurate figures — deliberately or carelessly — are separate from the late filing system.

Late payment penalties (separate from points)

In addition to the filing penalty points system, HMRC operates a late payment penalty framework that applies to tax owed:

• Days 1–15: No penalty (but interest accrues from day 1)
• Day 16–30: 2% of outstanding tax
• Day 31+: 4% of outstanding tax (annualised at 8% for persistent late payment)

Interest on unpaid tax also runs from the day after the payment due date at the HMRC late payment interest rate (currently base rate + 2.5%).

Reasonable excuse

HMRC will waive penalty points if you have a reasonable excuse for a late submission. Accepted excuses include:

• Serious illness or bereavement (yourself or a close family member)
• Unexpected and significant IT failure preventing submission
• Postal delays if filing by paper (rare in MTD context)
• HMRC system failure preventing submission (HMRC will typically issue a blanket waiver in these cases)

Not accepted as reasonable excuse: "I forgot", "I didn't know about MTD", "my accountant didn't tell me", or general pressure of work. Claims of ignorance are particularly unlikely to succeed given the volume of HMRC communications about MTD since 2022.

How Regulas helps you stay on track

The most reliable defence against penalty points is not missing deadlines in the first place. Regulas is built around this:

• Deadline dashboard: Your next quarterly deadline is always visible on your home screen
• Reminder notifications: Email reminders 30 days, 14 days, and 7 days before each deadline
• One-click submission: Submit directly to HMRC from your dashboard without leaving the app
• Submission history: View all past submissions and HMRC acknowledgements in one place

Read our guide on quarterly updates and deadlines for a full breakdown of what to submit and when.