Making Tax Digital Penalties: Late Submission Fines Explained

The new MTD penalty system works like penalty points on a driving licence. Each time you miss a submission deadline, you receive one penalty point. The points accumulate, and when you reach a set threshold, you receive a financial penalty. For MTD for ITSA, the submission frequency is quarterly (plus the Final Declaration), which means 5 submissions per year. The penalty point threshold is 4 points. Here is how it works in practice: - **1st late submission**: 1 point (no fine) - **2nd late submission**: 2 points (no fine) - **3rd late submission**: 3 points (no fine) - **4th late submission**: 4 points — **£200 fine triggered** - **5th and subsequent late submissions**: £200 fine for each one (while at the threshold) This means you can miss up to 3 quarterly submissions before receiving any financial penalty. The system is deliberately lenient for occasional lateness but escalates for persistent non-compliance. Points do not expire automatically after a set period like driving licence points. Instead, you must actively demonstrate compliance to reset them (see the section on resetting points below).

A quarterly update is considered late if it is not submitted by the deadline for that quarter. The deadlines are: - **Q1** (6 April – 5 July): Due 7 August - **Q2** (6 July – 5 October): Due 7 November - **Q3** (6 October – 5 January): Due 7 February - **Q4** (6 January – 5 April): Due 7 May - **Final Declaration**: Due 31 January following the end of the tax year If you submit your Q1 update at 11:59pm on 7 August, you are on time. If you submit at 12:01am on 8 August, you are late and will receive a penalty point (from 2027/28 onwards). There is no grace period. The deadline is the deadline. However, HMRC has confirmed that submission means the data being received by HMRC's systems — so if you press submit at 11:55pm and it takes a few minutes to process, you should still be fine as long as the submission was initiated before midnight.

The points system only applies to late submissions. Late payment of tax is penalised separately under a different system. For MTD for ITSA, late payment penalties work as follows: - **Up to 15 days late**: No penalty (but interest accrues from day 1) - **16–30 days late**: First penalty charge — calculated at 2% of tax outstanding at day 15 - **31+ days late**: Additional 2% of tax outstanding at day 30, plus a daily rate of 4% per annum on the outstanding balance Late payment interest is charged at the Bank of England base rate plus 2.5%. As of February 2026, this means interest of approximately 7% per annum on unpaid tax. Payment on account dates for Self Assessment remain unchanged. You still pay on 31 January and 31 July each year. MTD quarterly updates do not create new payment dates — they are reporting obligations, not payment obligations. If you cannot pay on time, contact HMRC as early as possible to arrange a Time to Pay agreement. This does not remove the interest charge but can prevent escalation of penalties.

If you receive a penalty you believe is unfair, you can appeal within 30 days of the penalty notice. HMRC will consider your appeal if you have a reasonable excuse for the late submission or late payment. Examples of what HMRC typically accepts as a reasonable excuse: - Serious illness or hospitalisation that prevented you from filing - Death of a close family member shortly before the deadline - HMRC's own systems were down or unavailable when you tried to submit - A fire, flood, or other natural disaster destroyed your records - Your software provider had a system failure that prevented submission Examples of what HMRC typically does not accept: - You forgot the deadline - You were too busy with work - You did not know about MTD or the deadlines - Your accountant failed to file on time (you are still responsible) - You found the software difficult to use - You had a cash flow problem (for late payment appeals) To appeal, you can use HMRC's online service, write to them, or call the Self Assessment helpline. If your appeal is rejected, you can request a statutory review and, if still dissatisfied, appeal to the First-tier Tribunal (Tax Chamber). Keep detailed records of any circumstances that prevented you from filing on time. A GP letter, hospital discharge note, or screenshot of a software error message can be the difference between a successful and unsuccessful appeal.