MTD Penalties Explained: What Happens If You Miss a Quarterly Deadline

Making Tax Digital (MTD) for Income Tax launches on 6 April 2026, bringing a new quarterly reporting system for landlords and sole traders with income over £50,000. With this change comes a completely new penalty regime that replaces the existing Self Assessment penalty structure.

If you’re wondering what happens when you miss a quarterly deadline, or how the new penalty system works, this guide explains everything you need to know.

The New Penalty Points System

HMRC has introduced a points-based system for late submissions under MTD. Unlike the old Self Assessment regime where you paid a fixed penalty immediately, the new system gives you “points” for missed deadlines.

How Points Accumulate

• One point per missed quarterly update
• One point for a late End of Period Statement (EOPS)
• One point for a late final declaration

Once you reach a certain number of points (known as the “penalty threshold”), you’ll receive a £200 fixed penalty. For most landlords filing quarterly, the threshold is 4 points.

This means you could miss three quarterly deadlines before facing a financial penalty — but we strongly advise against testing this system.

When Points Expire

Points don’t stay on your record forever. Each point expires after 24 months from the date you reached the penalty threshold. Once you’ve gone 24 consecutive months without missing a deadline (after being penalised), your slate is wiped clean.

Late Submission Penalties: Step by Step

The First Grace Period (Year 1 Only)

For the first year of MTD (6 April 2026 to 5 April 2027), HMRC is offering a 12-month grace period for late submission penalties. This means:

• You’ll still receive penalty points for late submissions
• However, no financial penalties will be charged for late submissions in year 1
• Late payment penalties still apply (see below)

This grace period is designed to help taxpayers adjust to the new quarterly system. However, it’s crucial to understand that points are still accumulating — and when year 2 begins, those points matter.

What Happens After Year 1

1. Point 1-3: Warning letters from HMRC, no financial penalty
2. Point 4: £200 fixed penalty
3. Point 5+: Another £200 penalty for each subsequent late submission while you’re above the threshold

Example Timeline

Let’s say you’re a landlord filing quarterly:

• 7 August 2026: Miss Q1 deadline → 1 point (no fine due to grace period)
• 7 November 2026: Miss Q2 deadline → 2 points (no fine due to grace period)
• 7 February 2027: Submit on time → Still at 2 points
• 7 May 2027: Miss Q4 deadline → 3 points (no fine due to grace period)
• 7 August 2027: Miss Q1 deadline → 4 points → £200 penalty (grace period ended)

Late Payment Penalties: These Apply from Day One

While late submission penalties have a grace period, late payment penalties do not. These apply from 6 April 2026 onwards.

The Two-Tier Structure

First Penalty (Day 15) — If your tax remains unpaid 15 days after the payment deadline, the penalty is 5% of the tax outstanding.

Second Penalty (Day 30) — If your tax remains unpaid 30 days after the payment deadline, an additional penalty of 5% of the tax still outstanding is applied.

Interest Charges

On top of penalties, HMRC charges daily interest on any unpaid tax from the day after it’s due until the day it’s paid. The current interest rate is 7.75% per year (as of February 2026).

Example Calculation

Suppose you owe £2,000 in tax for your Q1 payment (due 7 August 2026):

• 7 August 2026: £2,000 due
• 22 August 2026 (Day 15): Still unpaid → £100 penalty (5% of £2,000)
• 6 September 2026 (Day 30): Still unpaid → £100 additional penalty (5% of £2,000)
• Total penalties: £200 + approximately £3.20 interest

Common MTD Penalty Scenarios

Scenario 1: You Forget One Quarterly Deadline

You receive 1 penalty point and a warning letter. No financial penalty unless you’re in year 2+ and already at the threshold. Action: Set calendar reminders for all future deadlines (7 Aug, 7 Nov, 7 Feb, 7 May).

Scenario 2: You File On Time But Pay Late

No penalty points (submission was on time). Late payment penalties apply (5% at day 15, 5% at day 30) plus daily interest. Action: Set up a payment plan with HMRC immediately.

Scenario 3: You Miss Multiple Deadlines in Year 1

Penalty points accumulate but no financial penalty due to the grace period. However, you’re building up a points balance that carries into year 2. Action: Get your MTD compliance back on track before 6 April 2027.

How to Appeal an MTD Penalty

If you believe you have a “reasonable excuse” for missing a deadline, you can appeal to HMRC. Acceptable excuses include:

• Serious illness or bereavement
• Unexpected hospital stays
• Computer or software failure beyond your control
• HMRC’s own errors or guidance
• Natural disasters or emergencies

What’s NOT a reasonable excuse: Forgetting the deadline, being too busy, not understanding the rules, or relying on someone else who let you down (unless that person was a professional adviser).

Contact HMRC within 30 days of receiving the penalty notice with evidence supporting your case. If rejected, you can appeal to the independent Tax Tribunal.

How to Avoid MTD Penalties Altogether

1. Use MTD-compatible software from day one (Xero, QuickBooks, FreeAgent)
2. Set quarterly reminders at least 2 weeks before each deadline
3. Keep digital records throughout the quarter, not just at deadline time
4. Budget for quarterly payments so you’re never scrambling for cash
5. Work with an MTD specialist accountant who can file on your behalf

How HS Global Accountancy Can Help

At HS Global Accountancy, we specialise in Making Tax Digital compliance for landlords across the UK. Our MTD service includes software setup, quarterly submission filing on your behalf, tax payment calculations, End of Period Statements, direct HMRC communication, and full deadline monitoring.