MTD Penalties: What Happens If You Miss a Quarterly Update?

Making Tax Digital for Income Tax brings a new obligation: four quarterly digital submissions per year, instead of a single annual self-assessment return. Missing those submissions has consequences — but HMRC has replaced the old fixed penalty system with something more nuanced.

Understanding how the new system works matters. It is designed to give genuine allowance for occasional mistakes while still deterring persistent non-compliance.

This guide explains the penalty system in full, what triggers penalties, how to clear them, and what to do if you have already fallen behind.

How the points-based penalty system works

HMRC's penalty regime for MTD ITSA is built around a running points total. Every time you miss a quarterly submission deadline, you receive one penalty point. Points accumulate separately from each other — it is the total that triggers a financial penalty.

Penalty points table

Points accumulated	Consequence
1 point	Warning — no financial penalty
2 points	Warning — no financial penalty
3 points	Warning — no financial penalty
4 points	£200 financial penalty
Each additional missed submission	Further £200 penalty per missed submission

Once you reach the four-point threshold, every subsequent missed submission generates a new £200 charge — not just the fourth. You are in penalty territory until you clear your points total.

How MTD penalty points expire

Points do not stay on your record forever. HMRC's system allows points to expire once you have demonstrated a sustained period of compliance.

To clear your points, you must:

1. Submit all outstanding returns (including any missed ones)
2. Then maintain full, on-time compliance for 24 consecutive months

After 24 months of unbroken compliance, your points total resets to zero.

This is important: the 24-month clock does not start until you are fully caught up. If you have outstanding submissions, those need to be filed first — then the compliance period begins.

Quarterly submission deadlines

Under MTD for Income Tax, your four quarterly periods align to the standard tax-year quarters. Each submission is due one month after the end of the quarter.

Missing any one of these generates one point. Four missed submissions across the year — or spread across two years — puts you in penalty territory.

Late payment penalties: separate from late filing

The points system covers late filing of quarterly updates. But HMRC also operates a separate penalty regime for late payment — that is, paying your tax bill late after the End of Period Statement and Final Declaration are processed.

Late payment interest

On top of any formal late payment penalties, HMRC charges interest on unpaid tax. The rate is:

Bank of England base rate + 2.5%

As of April 2026, with the base rate at approximately 4.5%, this equates to around 7% interest on overdue tax. Interest accrues daily from the payment due date.

Late payment penalty charges

How late	Penalty
Up to 15 days late	No penalty (but interest applies)
16 to 30 days late	2% of outstanding tax
31 days or more	4% of outstanding tax
6 months or more	Additional 4% per year (daily rate)

These are separate from and in addition to any filing penalty points. You can have both — a filing penalty for a missed quarterly update, and a payment penalty for settling your bill late.

Reasonable excuse: what qualifies

HMRC does allow for genuine circumstances that prevent timely submission. If you have a reasonable excuse, you can apply to have penalty points removed.

What HMRC accepts as reasonable excuse

• Serious or life-threatening illness (yours or a close family member's)
• Bereavement of a close relative close to the deadline
• Unexpected hospitalisation
• Technical failure of HMRC's own systems (this is documented and HMRC will acknowledge it)
• Natural disaster or fire affecting your records

What HMRC does not accept as reasonable excuse

• Forgetting the deadline
• Being too busy
• Not knowing about the MTD requirement
• Relying on someone else (an agent or accountant) who failed to submit — though you may have recourse against them separately
• Cash flow difficulties (these do not excuse late filing, though HMRC has a Time to Pay arrangement for late payment)
• Finding the software difficult to use

What to do if you have missed a submission

Do not wait and hope the problem goes away. The longer you leave it, the more points accumulate and the closer you get to a financial penalty.

Step 1: File the missed submission as soon as possible

Even if it is late, filing the outstanding update stops further escalation. HMRC's points system rewards getting back on track — the 24-month compliance clock can only start once you are caught up. If you are unsure what to include in a quarterly update, our step-by-step guide to your first quarterly update walks through the process.

Step 2: Check your points total

You can view your penalty points total through your HMRC online account or your MTD software (if it integrates with HMRC's penalty notification system). Know where you stand.

Step 3: Contact HMRC if you have a reasonable excuse

If the missed submission was caused by circumstances beyond your control, contact HMRC as soon as possible. Explain the situation and request that the point be removed. Do this promptly — do not wait for a formal penalty notice before raising the issue.

Step 4: Review your systems

If you missed a deadline because you forgot, or because your records were not ready, that is a process problem. Either get proper MTD-compliant accounting software with built-in deadline reminders, or appoint an agent who will manage submissions on your behalf.

The appeals process

If HMRC refuses to accept your reasonable excuse claim, or issues a penalty you believe is incorrect, you have the right to appeal.

Stage 1: Internal HMRC review

Request a review from HMRC within 30 days of the penalty notice. A different HMRC officer will review the decision independently. This is free and does not require a tribunal.

Stage 2: Tax Tribunal

If the internal review goes against you, you can appeal to the First-tier Tribunal (Tax Chamber). This is an independent body — not part of HMRC. You do not need a lawyer to appear, but legal advice is worthwhile for significant penalties.

Tribunal applications must be made within 30 days of the conclusion of the internal review. Missing this window forfeits your right to appeal unless exceptional circumstances apply.

Time to Pay: if you cannot afford the tax

Late payment penalties and interest are serious, but HMRC does offer a Time to Pay arrangement if you genuinely cannot settle your tax bill in full. This lets you spread payments over an agreed period, usually up to 12 months for smaller amounts.

Time to Pay does not remove late payment interest, but it can prevent further escalation and give you a structured route to clearing the debt. Apply through your HMRC online account or by calling HMRC's self-assessment payment helpline.

Avoiding MTD penalties altogether: a simple checklist

Prevention is straightforward once you know the rules:

• Know your four quarterly submission deadlines: 7 August, 7 November, 7 February, and 7 May
• Use MTD-compliant software with deadline reminders built in
• Keep your digital records updated throughout each quarter — not all at once at the end
• If you use an accountant, confirm they are registered as your agent on your HMRC account and are responsible for submissions
• Set your own calendar reminders as a backup, even if you have an agent
• If you fall behind, file immediately rather than waiting
• Know your rights: a reasonable excuse genuinely does work for HMRC — use it if it applies

If you are not yet sure whether MTD applies to you, check your eligibility before the April 2026 deadline.