Be sure to head over to our Making Tax Digital hub, full of guides, software reviews, important dates and more.
⚠️ Whether you’re VAT registered or filing Income Tax under Making Tax Digital, HMRC has new rules and new penalties for anyone who files late or forgets to pay.
Here’s what you need to know, split clearly between VAT and MTD for Income Tax (ITSA).We’ll explain the new points-based penalty system, what triggers a fine, and how to stay in HMRC’s good books.
MTD for VAT: What are the penalties?
Since April 2022, MTD is mandatory for all VAT-registered businesses, even if you’re under the £90,000 threshold. If you miss a VAT return deadline, HMRC now uses a points-based system (rather than an instant fine) to encourage compliance.
How it works:
- You get 1 point every time you file late.
- Once you reach a points threshold, you get a £200 fine.
Every late return after that is another £200 penalty until you clean up your record.
|
Submission Frequency |
Points Threshold (before penalties) |
|---|---|
|
Annual |
2 points |
|
Quarterly |
4 points |
|
Monthly |
5 points |
Resetting your points:
You’ll need a clean streak (no late submissions) for a set period to reset your points back to zero:
- Annual filers: 24 months
- Quarterly filers: 12 months
- Monthly filers: 6 months
This only resets if all returns are up to date.
MTD for Income Tax: What are the penalties?
MTD for Income Tax Self Assessment (aka ITSA) is being rolled out from:
- April 2026 if your self-employment and/or property income is over £50,000
- April 2027 for those with income between £30,000–£50,000
⚠️ This is a separate system from VAT – and it comes with its own penalties. ⚠️
Just like with VAT, HMRC is introducing:
1. Late submission penalties (points-based)
Under MTD for Income Tax, you’ll need to send quarterly updates plus a final end-of-year declaration. Every time you miss a submission deadline, you get 1 penalty point.
If you reach 4 points, HMRC hits you with a £200 fine.
From there, every further late submission earns another £200 — until you bring your record back into shape and reset your points.
To wipe the slate clean, you need:
- All past submissions up to date
A 12-month streak with no late filings.
2. Late payment penalties
This is separate from filing — it’s about when you actually pay your tax bill.
If you miss the payment deadline:
- ✅ No penalty if you pay within 15 days
- ❗ 2% penalty if you pay 16–30 days late
- ❗❗ Another 2% if you’re over 30 days late
- 🧮 Daily interest kicks in from day 1 (usually over 4% per year)
📌 In short: don’t delay. Missing your payment deadline can snowball into serious extra costs.
What counts as a ‘submission’?
Under MTD rules:
- For VAT: it’s your usual VAT return, filed via MTD-compatible software.
- For MTD for Income Tax: it’s your quarterly updates and your end-of-year final declaration.
Missing any of these can trigger penalty points.
Top tip: Avoiding penalties is easier than fixing them
🧠 The best way to stay penalty-free?
- Use MTD-compliant software (like FreeAgent, Xero or QuickBooks) – we’ve got a review of each of them here)
- Set reminders for your filing dates
- Don’t leave it until the last minute
If you’re worried about keeping up, we’ll handle the whole thing for you.
👉 Take our MTD quiz to find out when you need to be compliant
👉 Get started with our MTD support packages – or just message us and we’ll guide you
In a nutshell 🥜
| Type | Missed Submission | Late Payment |
| MTD for VAT | Points-based: £200 fine after 4 late returns (quarterly) | Separate interest charges if you pay VAT late |
| MTD for Income Tax | Same points-based system | 2% after 15 days, 4% after 30 days, then daily interest |
Still not sure where you stand?
📩 Get in touch and we’ll break it down with no jargon – just Dead Simple support from real humans.
