Making Tax Digital penalties

How does the Making Tax Digital penalty system work?

Under Making Tax Digital (MTD), you must file your returns using functional and compatible software, keep digital records, and use digital links to connect your software. Failing to meet any of these requirements may result in penalties under a points-based system.

You'll receive penalty points for late submissions, not keeping digital records, and not using digital links. Once you reach a certain number of points, you'll be charged a penalty.

For annual submissions, accruing two points will result in a penalty. For those who make quarterly submissions (this will also apply to MTD for IT), four points result in a penalty. For monthly submissions, taxpayers who collect five points will be subject to a penalty.

If you reach your submission penalty threshold, you’ll incur a £200 fine.

Making Tax Digital VAT Deadlines

Making Tax Digital for VAT has applied to all VAT-registered businesses since April 2022.

Most businesses send VAT returns every three months – these are known as accounting periods. And, the deadline for submission and payment is one calendar month and seven days after the end of a VAT period. You can view when submissions are due in your VAT online account.

If you miss a deadline, you'll accrue one penalty point. You'll get a separate penalty for submitting a return late and missing a payment.

MTD for VAT penalties

Fines for VAT are made up of penalties and interest.

Late VAT submissions and payments both result in penalty points. When you reach a specific points threshold, you receive a fine. If you're making quarterly VAT submissions, the threshold is four points.

Interest is paid on outstanding VAT balances. Different rates of interest apply depending on how late the full payment is. This differs from the previous VAT penalty system, where late submissions and payments resulted in HMRC recording a 'default' on your account. Getting a default could mean entering a surcharge period, where, if you get another default, you would need to pay a surcharge.

Penalties for late submissions and payments

Providing you make quarterly VAT submissions, the penalty points threshold is four points. If you reach this threshold, you'll need to pay a £200 fine.

Penalties for late submission of VAT returns

You'll get additional £200 fine for late submissions while you're at this threshold. Essentially, if you've already accrued four points and a £200 fine, further late submissions will incur the same fine.

Penalties for late payment of VAT

For late payments, the sooner you pay, the lower the fine. If tax is unpaid after 15 days, you'll pay 3% on the outstanding amount. And if this tax is still unpaid after day 30, you'll pay 3% on the outstanding amount at 15 days, plus 3% on the outstanding amount at day 30. Any amount left to pay after day 31 is subject to an additional penalty that accrues on a daily basis, at 10% per annum on the outstanding amount.

Penalty points expiration

MTD penalty points expire after two years. The two years are counted from the month after you received the points. So, if you received penalty points in June, the two year period would start from July.

Making Tax Digital for Income Tax deadlines

Making Tax Digital for Income Tax begins in April 2026, for sole traders and landlords earning above £50,000. Those earning above £30,000 will follow in April 2027. And, those earning above £20,000 will enrol in April 2028. Going forward, submissions for MTD for IT will be quarterly and cumulative. This means you can make adjustments to the previous quarters when you send the next update. Here's what that looks like: - The first quarterly update will be for 6 April - 5 July, with the submission due by 7 August - The second quarterly update will be for 6 April - 5 October, with the submission due by 7 November - The third quarterly update will be for 6 April - 5 January, with the submission due by 7 February - The fourth quarterly update will be fore 6 April - 5 April, with the submission due by 7 May Our guide to HMRC quarterly updates can help you understand the changes in depth. Once all four quarterly updates have been sent, you'll also need to send a Final Declaration due by 31 January.

Making Tax Digital for Income Tax penalties

Making Tax Digital penalties for Income Tax will follow the same points system as VAT. Four quarterly updates for MTD for IT means the points threshold for a £200 fine is four points. If you make four late submissions, you incur four penalty points, and a fine. For late payments, the same penalties apply as MTD for VAT – interest charged at 16 days and 31 days until the full payment is made. It's worth noting that you could be fined for failing to have compatible software in place. If you don't use functional compatible software for your VAT return, you could be subject to a fine of up to £400. It's likely that similar fines will apply to MTD for IT.

How much are the new Making Tax Digital fines?

If you reach a penalty threshold, you’ll be subject to a £200 fine. Once you reach that threshold, every following failure to make a payment on time will incur a fine. The points threshold for submissions are:

• Monthly submissions: Businesses who make monthly submissions to HMRC will need to accrue five points for the £200 fine to be applied.
• Quarterly submissions: Businesses who make quarterly submissions to HMRC will need to accrue four points for the £200 penalty fine to be applied. This includes businesses who submit quarterly VAT returns and MTD for Income Tax updates.
• Annual submissions: If you make annual submissions to HMRC, you will need to accrue two points for the £200 penalty fine to be applied.

How to avoid Making Tax Digital penalties

For every submission obligation you have, you’ll have a separate points total. So, if you submit a VAT return but also need to follow MTD rules for IT and send quarterly updates, you could accrue points for both, separately.

You can avoid Making Tax Digital penalties by complying with the rules. Ensure you have compatible software and digital links in place, and that you submit your returns and updates on time.

From April 2026, self-employed people and landlords with turnover above £50,000 will be subject to the points-based penalty system.

According to HMRC, the penalties will also provide a sanction to encourage compliance with the new quarterly updates. You can read more about MTD for IT penalties here.

Will HMRC waive penalties?

Taxpayers have a right to appeal points and penalties for MTD. This does not guarantee that HMRC will waive penalties. You’ll need to use the reviews and appeals process, and have a reasonable excuse for missing a deadline.

HMRC can use their discretion not to levy a point or issue a penalty in particular circumstances. They'll make these decisions based on published guidance.

Conclusion on MTD penalties

With the points-based model now in place, taxpayers who are consistently compliant but make the occasional error won’t be unduly penalised. Those who are consistently non-compliant with MTD rules or deadlines will face penalties and sanctions.

If you want to learn more about how to comply with MTD rules and avoid penalties, read our guide to MTD for businesses or explore our Making Tax Digital resource hub for small business owners.

For more information on how Making Tax Digital impacts accountants and bookkeepers, take a look at our expert MTD resource hub. You can also learn more about requirements for MTD for Income Tax on our MTD for IT resource hub.

MTD penalties FAQs

How much is the fine for MTD non-compliance?

Late submissions lead to penalty points, and if you reach the points threshold, you could face a £200 fine. Late payments accrue different levels of interest from 16 days and 31 days late until full payment is made. How much interest you pay depends on your tax bill and how late you settle the bill. Not using functional compatible software can result in a fine of up to £400.

What happens if I miss my VAT return deadline?

You receive a penalty point every time you submit a VAT return late. When you reach the penalty points threshold, you'll need to pay a fine of £200. The threshold depends on how frequently you submit VAT returns. If you submit VAT returns quarterly, as many businesses do, the points threshold is four. To avoid fines for late submissions, send your VAT return to HMRC as soon as you can. If you're getting closer to the points threshold – for example, three points – make it a priority to file on time next time. You can also reach out to HMRC if you're unable to pay your VAT bill, to set up a repayment plan that makes things more comfortable.

How does the points-based penalty system work?

Every late submission for MTD for VAT and MTD for IT results in a penalty point. When you reach a certain number of points, you get a £200 fine. The points threshold is based on how many times you make submissions throughout the year. If you submit updates annually, the threshold is two points. If you submit quarterly, the threshold is four points. Fro monthly submissions, it's five points. Penalty points expire after two years, but if you reach the threshold, you'll need a period of compliance to avoid additional fines. A business that makes quarterly submissions and has three penalty points will receive a penalty for one more late return. If this business submits another return on time, it remains at the threshold but doesn't receive a fine. A further late return means they remain at the threshold, and will face another fine.

Can I appeal an MTD penalty?

If you receive a £200 fine, you'll get a letter from HMRC that offers a chance to review. You can contact HMRC within 30 days of the penalty being issued to make an appeal. You'll need to be able to explain to HMRC why you disagree with the decision.