The New MTD Penalty Points System: How Late Submissions Are Penalised

One of the biggest changes coming alongside Making Tax Digital for Income Tax is a completely new approach to penalties for late submissions. The old system of fixed £100 fines and cumulative monthly charges is being replaced with a points-based regime that works more like a driving licence: each late submission earns you a point, and the financial penalty only kicks in once you hit a threshold.

This is designed to be fairer to taxpayers who slip up occasionally — a single late submission no longer triggers an automatic £100 fine — while coming down harder on persistent lateness. It is also designed to work with the new quarterly rhythm of MTD, where four submissions a year plus a final declaration mean five chances to miss a deadline, compared to just one under Self Assessment.

This post explains how the points system works, who is in scope, and how to avoid tripping into financial penalties. It also covers the soft landing for the first year of MTD, the rules for how points expire, and your rights to appeal.

How the points system works

Every time you miss a submission deadline under MTD, HMRC gives you one penalty point. Points accumulate over time. Once you hit a threshold — four points for quarterly filers like most MTD IT taxpayers — HMRC issues a £200 financial penalty.

After you reach the threshold, every further late submission triggers another £200 penalty. Your points total does not increase beyond the threshold; each subsequent late submission just earns a £200 charge directly.

The points thresholds depend on how often you submit:

Submission Frequency	Penalty Point Threshold
Annual	2 points
Quarterly (MTD IT)	4 points
Monthly	5 points

MTD IT taxpayers file quarterly, so the relevant threshold is four points. You can be late three times without a financial charge — but the fourth late submission triggers £200, and every late one after that is another £200.

Which submissions count?

Under MTD IT, both quarterly updates and final declarations are in scope of the points system. So across a single tax year, a taxpayer has five potential chances to earn a point: four quarterly updates plus one final declaration.

Note that the points system is about late submission, not late payment. Late payment of tax is dealt with separately through the new proportionate penalty regime, which is covered in a separate post. A submission that is filed late but where tax has been paid on time still earns a submission point.

One points total across multiple businesses

This is one of the more generous features of the new regime. If you have multiple businesses or properties that each require separate quarterly updates, you only have one points total across all your ITSA submissions.

If you miss the Q1 deadline for both a trading business and a property business, that counts as one point, not two. Even if you have three separate qualifying income sources and all three Q1 updates are late, that is still just one point — for the month the lateness fell in.

The exception is when you have a late quarterly update and a late final declaration in the same month. Those are treated as separate points because they are different types of submission. So an individual could potentially get two points in one month if they miss both a quarterly deadline and a final declaration deadline that fell close together.

The 2026/27 soft landing

HMRC has built in a soft landing for the first year of MTD IT. For taxpayers mandated to join on 6 April 2026, no penalty points will be charged for missed quarterly updates during the 2026/27 tax year.

Penalty points for quarterly returns begin in earnest from 6 April 2027. So you effectively have a full year to get used to the quarterly rhythm, with no points consequences if you miss a deadline during that period.

However — and this is very important — the soft landing does not apply to:

Late final declarations. If you miss the 31 January 2028 deadline for your 2026/27 final declaration, that earns a point.
Late payment of tax. The separate late payment penalty regime is fully active from day one.

So the soft landing covers quarterly updates only, and only for the first year. If you think of it as a learning period for getting the quarterly submissions in on time, that is roughly right.

How points expire

Individual penalty points expire after 24 months from the month after the failure. So a point earned in August 2027 (for a late Q1 submission due 7 August 2027) would normally expire at the end of August 2029.

But there is a catch: points do not expire while you are at the penalty threshold. If you have hit four points and are stuck there with ongoing late submissions, the 24-month expiry clock is effectively paused.

To reset your points total completely to zero, you need to achieve two things:

A period of compliance. For quarterly filers under MTD IT, this means 12 months of on-time submissions.
All submissions due within the preceding 24 months must have been submitted (even if they were initially late).

Meeting both conditions clears your points total back to zero. Until both are met, your accumulated points remain in place.

HMRC discretion and special circumstances

HMRC has discretion not to charge a point or a penalty in individual cases. This discretion might be exercised where there are unusual circumstances or where charging a point would be disproportionate.

HMRC can also cancel or reset penalty points in specific situations — for example, in the period before an insolvency event, where enforcing penalties would serve little purpose. These powers are built into the new regime under Finance Bill 2026.

You cannot rely on HMRC discretion — you still need to file on time. But it is worth knowing that the system has some flexibility for exceptional situations.

Appeals and reasonable excuse

Like other tax penalties, both individual points and the £200 financial penalties can be appealed. The route is through HMRC's internal review process, with onward appeal to the First-tier Tax Tribunal if you are not satisfied with the review outcome.

The key ground for appeal is "reasonable excuse" — circumstances beyond your control that prevented you from submitting on time. What counts as reasonable excuse is a topic in itself (covered in a separate post), but examples include serious illness, bereavement, and IT failures.

Things that generally do NOT count as reasonable excuse include:

The return being too difficult to complete.
Pressure of other work.
Lack of information (unless truly beyond your control).
HMRC not sending you a reminder.
Ignorance of the law (in most cases).
Insufficient funds (unless due to events outside your control).

If you have a reasonable excuse, state it clearly in your appeal. HMRC must then consider the excuse and write to you explaining any rejection.

Working out where you stand

A simple way to think about your position under the points system:

Points Accumulated	Position
0	Clean slate
1	One late submission; no penalty yet
2	Two late; still no penalty
3	Three late; one more triggers penalty
4 (threshold)	£200 penalty triggered; each further late submission another £200

HMRC notifies you of each point as it is awarded, so you know where you stand at any given time. If you have accumulated points, getting back to a clean slate requires the combination of 12 months of on-time submissions AND all back-submissions filed within the preceding 24 months.

Avoiding points in the first place

The best strategy is simply to file on time. Practical steps:

Set calendar reminders. Mark each quarterly deadline (7 August, 7 November, 7 February, 7 May) and the 31 January final declaration deadline in multiple places.
Prepare early. Aim to have each quarterly update ready a week before the deadline, not on the day. You can submit up to 10 days before the quarter ends if you are confident all transactions are in.
Use reliable software. MTD-compatible tools should prompt you as deadlines approach. Make sure the software is properly connected to HMRC before you need it.
Don't leave data entry until deadline week. Keep your digital records up to date throughout the quarter. The last thing you want is a 10-hour data entry marathon on 6 August trying to hit the 7 August deadline.
Handle cessations cleanly. If a business or property stops during a quarter, make sure the final transactions are recorded and the cessation is properly flagged in your software.

Frequently Asked Questions

Q: Does the soft landing mean I can ignore quarterly updates in 2026/27? A: No. The soft landing only removes the points consequence for late submissions in 2026/27 — it does not remove the obligation to submit. You still need to file quarterly updates, and late or missing updates can still attract scrutiny from HMRC. The soft landing is a learning period, not a free pass.

Q: What if I have both a trading business and a property business under MTD? A: You have one points total across all your ITSA submissions. If both businesses' Q1 updates are late in the same month, that is one point, not two. But a late final declaration in addition to a late quarterly update in the same month is two separate points.

Q: How do I know what my points total is? A: HMRC notifies you each time you earn a point. The information is also available through your MTD account. Your software may also display your current points position, depending on the tool.

Q: Can I appeal a point? A: Yes. Both points and penalties can be appealed through HMRC's internal review and onwards to the First-tier Tax Tribunal. The main ground is reasonable excuse — serious illness, bereavement, IT failures, and similar circumstances beyond your control. HMRC must give you a written decision explaining any rejection.

Q: Do points transfer if my agent changes? A: Points are attached to the taxpayer, not the agent. Changing agents does not reset your points total. Similarly, a client's points do not affect any new agent's record — they stay with the client.

Conclusion

The new penalty points system is fundamentally fairer than the old fixed-fine approach. A single late submission no longer triggers a £100 bill out of the blue; you have some room for occasional mistakes before the financial consequences bite. But it is also unforgiving if you drift into habitual lateness — once you hit the threshold, every future late submission is £200 without further warning. The goal is straightforward: treat each quarterly deadline as important, set up your systems to meet them comfortably, and use the 2026/27 soft landing as a genuine learning period rather than an excuse to postpone.