Making Tax Digital Penalties Explained: What You Risk

The New Points-Based Penalty System

HMRC has replaced the old penalty regime with a new points-based system for Making Tax Digital. This system is designed to be fairer — occasional mistakes won't immediately result in fines, but persistent non-compliance will.

Here's how it works: every time you miss a submission deadline, you receive one penalty point. Once you reach the penalty point threshold, you'll be charged a £200 fine. After that, every further missed deadline triggers another £200 fine until you bring your compliance up to date.

For quarterly submissions (which is what most MTD taxpayers will have), the threshold is 4 points. This means you can miss up to 3 deadlines before facing a financial penalty — but those points don't disappear easily.

Late Submission Penalties

Late submission penalties apply when you miss a quarterly update deadline:

1st missed deadline: 1 penalty point (no fine yet)
2nd missed deadline: 2 points (no fine yet)
3rd missed deadline: 3 points (no fine yet)
4th missed deadline: 4 points = £200 fine
Each subsequent miss: Another £200 fine

To reset your points back to zero, you need to meet all submission deadlines for a set period (24 months for quarterly submissions) and submit any outstanding returns. This is a long road back, so it's far better to avoid accumulating points in the first place.

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Late Payment Penalties

Separate from submission penalties, there are also penalties for paying your tax late. These are calculated as a percentage of the tax owed:

Up to 15 days late: No penalty (grace period)
16–30 days late: 2% of the tax owed at day 15
31+ days late: 2% of the tax owed at day 15 + 2% of the tax owed at day 30
Ongoing: After 31 days, a daily rate of 4% per annum on the outstanding balance

HMRC also charges interest on any outstanding tax from the due date. The interest rate is set at the Bank of England base rate plus 2.5%.

The best way to avoid late payment penalties is to have a clear picture of your tax liability throughout the year. Software like TaxBridge shows your estimated tax in real time, so there are no nasty surprises at year-end.

How to Avoid MTD Penalties

The penalty system is designed so that you won't be punished for the occasional slip. But here's how to stay well clear of any trouble:

Use reliable software: The right MTD software will remind you of upcoming deadlines and make submissions straightforward. See our comparison of MTD software.
Set calendar reminders: Mark the 7th of August, November, February, and May as your submission deadlines.
Keep records as you go: Don't leave everything to the last week of the quarter. Log income and expenses regularly.
Submit early: You can submit your quarterly update as soon as the quarter ends. Don't wait until the deadline.
Budget for tax: Set aside a percentage of your income each month so you can pay on time when the bill comes.

Frequently Asked Questions

How much are Making Tax Digital penalties?

Late submission penalties are £200 once you reach the penalty point threshold (4 points for quarterly submissions). Late payment penalties start at 2% of the tax owed after a 15-day grace period, increasing to 4% per annum after 31 days.

How many penalty points before I get fined?

For quarterly MTD submissions, the threshold is 4 penalty points. You receive one point for each missed deadline. Once you hit 4 points, you receive a £200 fine, and every subsequent miss triggers another £200.

Can penalty points be removed?

Yes, but it takes time. For quarterly submissions, you must meet all deadlines for 24 consecutive months and submit any outstanding returns. After that, your points reset to zero.

Is there a grace period for MTD payments?

Yes. Late payment penalties don't apply until 16 days after the due date. If you pay within 15 days, you won't face a payment penalty — though interest still accrues from the original due date.