If you’re a sole trader or landlord and are now required to file under Making Tax Digital for Income Tax, there’s a good chance you already know when your quarterly deadline is approaching. What’s less clear to most people is what actually happens if they miss the deadline. Is it an instant fine? A black mark against your name? Something HMRC quietly forgets about? Of course, the answer is that it’s more nuanced than that.

This blog delivers a clear, factual breakdown of the consequences of missing a MTD submission deadline. It covers HMRC’s points-based penalty system and the practical and financial risks of non-compliance.

The old system vs the new Making Tax Digital penalties

Under the previous Self Assessment regime, missing your filing deadline by even a single day triggered an automatic £100 penalty, regardless of the reason. Someone who’d never missed a deadline in twenty years was treated identically to someone who ignored HMRC altogether.

MTD replaces that with a points-based system, the same model that’s applied to VAT since January 2023. Rather than an instant fine for any submitting late, you accumulate a penalty point each time you miss a submission deadline.

MTD Late Submission: what happens the first time you’re late submitting?

HMRC operates a points-based system for late submissions. Miss a deadline and you’ll receive a point not a penalty. One missed submission shouldn’t cost you anything financially but if you accrue multiple points, then you will be penalised.

There’s also a helpful bit of breathing room for anyone joining MTD for Income Tax from April 2026: HMRC has confirmed a ‘soft landing’ for the first year, meaning no penalty points are issued for late quarterly updates during that initial period. It’s worth noting this doesn’t apply to your annual tax return, which can still attract a point if it’s late, and quarterly updates still need to be filed on time to allow your year-end return to be submitted.

Please be aware that this soft landing applies specifically to those joining MTD for Income Tax from April 2026, in their first year only. If you’re VAT-registered and have been under MTD since 2023, the points-based penalty system already applies to your submissions, so you don’t get this grace period.

HMRC MTD points-based penalty system

As explained, every time you miss a submission deadline, you receive one point. How many points you can rack up before a penalty kicks in depends on how often you’re required to file:
● Quarterly filers – Most businesses and landlords eligible for MTD for Income Tax compliance. You reach the threshold at four points.
● Annual filers hit the threshold at just two points.

Once you reach your threshold, HMRC issues a fixed £200 penalty. Every further late submission after that point triggers another £200 charge, so the costs can keep stacking up if late filing becomes the norm.

However, If you stay below the points threshold, points simply expire after 24 months of good behaviour. Except, if you’ve already crossed the threshold and paid a penalty, then to clear your record takes a run of consecutive on-time submissions. This is four consecutive quarters, for quarterly filers, or 24 months if you file annually before your points reset to zero.

This system is less about catching people out for a single mistake and more about identifying persistent non-compliance.

Making Tax Digital Penalties: It’s not just about the fine

Most small business owners and landlords need to know that the financial penalty is arguably not the most disruptive part of HMRCs penalty system. It’s catching up.

MTD requires that you keep digital records and submit quarterly updates throughout the year. If a deadline is missed and you’re now trying to catch up, you’re not just late, you’re maybe trying to reconstruct months of transactions, receipts, and figures in one go. Under pressure is when you can make mistakes. It’s so easy to find you’re misclassifying expenses, lost invoices or that your numbers don’t reconcile.

This can lead to less accurate records and inaccurate figures. None of that necessarily triggers a penalty point on its own, but it does increase the chances of HMRC querying your figures later, and it makes correcting things afterwards considerably more time-consuming than getting them right the first time.Then there’s the stress of it all and the potential of your paying extra tax than you need to.

What happens if I miss my MTD deadline?

It’s likely that one missed deadline probably won’t hurt you financially but you have to be honest with yourself. Life gets busy, records get lost and quarterly deadlines are likely to come around each quarter more quickly than you think, especially in the early days of adjusting to this new way of reporting.

Whilst the points system is more forgiving than before, it’s built on the assumption that most people will get on top of things fairly quickly. If you’re persistently late submitting, you’ll face recurring costs on top of the practical headache of rushing to get your books reconciled, agreed and submitted.

Get ahead and stay ahead of MTD

The businesses and landlords who find MTD straightforward tend not to leave things to the last minute. Keeping digital records up-to-date, rather than trying to reconstruct them under pressure, is far less stressful and will be more cost effective in the long run. You can read more about HMRC penalties for MTD here.

If you’d rather get MTD processes in place now, call the professional team at Hour Hands. Our experienced bookkeepers understand HMRC, MTD and all the rules and guidelines needed to stay compliant. We can help you establish best practices and even manage your submissions for you. Give us a call today and let’s talk about what you need and how we can help.