MTD Penalties Explained: Points, Fines, and the 2026/27 Grace Period

One of the biggest worries about Making Tax Digital is penalties. What if you submit late? What if you get the numbers wrong? Here's how HMRC's rules actually work, from HMRC's own penalties guidance.

No penalty points for late quarterly updates in 2026 to 2027

For the 2026 to 2027 tax year, HMRC won't give penalty points for missed quarterly update deadlines. You still have to keep digital records and send all four quarterly updates before you can submit your tax return, so it's a soft landing, not an exemption.

Penalty points do still apply to a late tax return.

How the points system works from 2027 to 2028

• Each missed quarterly update deadline, or missed tax return deadline, earns one penalty point.
• You get only one point per deadline, even if you have more than one business.
• The threshold is 4 points. Reaching it means a £200 penalty, and each further missed deadline means another £200.

How points are removed

If you're below the threshold, each point is removed automatically 24 months after the deadline you missed.

Once you've reached the threshold, points aren't removed automatically. To clear them you need to:

• send your quarterly updates and tax return on time for 12 months; and
• send any outstanding quarterly updates and tax returns from the previous 24 months.

What if you send the wrong figures?

Quarterly updates are cumulative, so each one replaces the year-to-date figures for that tax year. If you spot a mistake in an earlier quarter, correct your records and the next update fixes it. You can also send a corrected update before your tax return. Correcting figures doesn't earn a penalty point.

Late payment

Late payment interest works as before. HMRC's new late payment penalties apply from the 2027 to 2028 tax year:

• Up to 15 days late: no penalty.
• 16 to 30 days late: 4% of the tax owed at day 15.
• 31 days or more: 4% of the tax owed at day 15, plus 4% of the tax owed at day 30, plus a daily penalty at 10% a year on the unpaid amount from day 31.

In your first year under the new rules, HMRC gives a longer 30-day grace period before the first penalty.

The practical takeaway

Don't panic. Use 2026 to 2027 to get into a routine: keep your spreadsheet up to date, send each update by the 7th of the month after the quarter ends, and keep your receipts. If you do that, the penalty system won't affect you.