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New penalty regime — MTD replaces the old rules

When you join MTD for Income Tax, HMRC's new late submission and late payment penalties replace the old Self Assessment penalty system (£100 fixed fee, daily fines, 5% surcharges). The new regime is points-based for late submissions and tiered by lateness for late payments.

Same tax return deadline as before: 31 January following the end of the tax year. Same tax payment deadline: 31 January. What changes is what happens when you miss a deadline.

Late submission — the points system

You get 1 penalty point for each missed quarterly update or tax return deadline. When you reach the threshold, HMRC charges a £200 penalty. After that, every further missed deadline is another £200.

SituationPoint threshold
Required to use MTD (mandated)4 points → £200
Volunteered for MTD (not required)2 points → £200

You can only get one penalty point per deadline — if you have three self-employment businesses and miss all three Q1 updates, that's still one point, not three.

⚠️ Soft launch — 2026/27 tax year only

For the 2026/27 tax year, HMRC will NOT apply penalty points for late quarterly updates. You still need to send them (you can't submit your tax return without them) but missing the 7 Aug / 7 Nov / 7 Feb / 7 May deadlines doesn't trigger a point.

Late tax return penalties still apply for 2026/27. And from the 2027/28 tax year onwards, late quarterly updates start earning points normally.

How points expire

  • Below threshold: each individual point expires 24 months after the missed deadline. Automatic.
  • At or above threshold: points don't expire automatically. To clear all your points you must (a) send all quarterly updates + tax returns on time for 12 consecutive months, AND (b) send any outstanding quarterly updates + tax returns from the previous 24 months.

Worked example — points accumulation

Priya, MTD-mandated sole trader, 2027/28 tax year:

  • Missed Q1 update (due 7 Aug 2027): 1 point
  • Sent Q2 on time: still 1 point
  • Missed Q3 update (due 7 Feb 2028): 2 points
  • Missed tax return (due 31 Jan 2029): 3 points
  • Missed Q1 for the following tax year (due 7 Aug 2029): 4 points → £200 penalty
  • Missed anything else after: £200 each time

Because Priya reached the threshold, her points don't auto-expire. To clear them: send everything on time for 12 months + catch up any missing filings from the last 24 months.

Late payment penalties — new schedule

Late payment penalties apply to the balancing tax payment due on 31 January (and any amendment/assessment amount). They do not apply to payments on account. Late-payment interest is separate and runs daily from day one of lateness.

Days late2026/27 tax year2027/28 tax year
Up to 15 daysNo penaltyNo penalty
16 to 30 days3% of tax owed at day 15 (or no penalty if it's your first MTD year)4% of tax owed at day 15 (or no penalty if it's your first MTD year)
31 days+3% at day 15 + 3% at day 30 + 10%/year charged daily from day 31, capped at 2 years4% at day 15 + 4% at day 30 + 10%/year charged daily from day 31, capped at 2 years

First-year rule: in your first MTD year (whichever tax year that is for you), you get 30 days grace before penalties start rather than 15. Only once — after your first year you have 15 days.

Worked example — late payment

Alex, MTD 2027/28 tax year, £4,500 balancing tax owed on 31 Jan 2029, pays 45 days late:

  • Days 1-15: no penalty (grace period, or 30 days if it's Alex's first MTD year)
  • Day 15 penalty: 4% × £4,500 = £180
  • Day 30 penalty: another 4% × £4,500 = £180
  • Days 31-45: annual 10% charge, daily = £4,500 × 10% × 15/365 ≈ £18.49
  • Plus late-payment interest at HMRC's official rate (currently around 8-8.5%) for all 45 days ≈ ~£46
  • Total added to the £4,500 tax bill: ~£424

The right move if you can't pay on time: contact HMRC before day 15 and set up a Time to Pay arrangement. Penalties pause from the date you contact HMRC, provided a plan is agreed and honoured. Interest continues, but the tiered penalties stop.

If you're worried about penalties

The three highest-leverage steps for freelancers approaching MTD:

  1. Diary the four quarterly dates as recurring calendar events with a 7-day lead reminder
  2. Keep a monthly bookkeeping rhythm — the "sit down every Sunday for 20 minutes" habit prevents the January panic
  3. Consider a contractor / small-business accountant if you're a limited-company director or your income is complex — our guide covers what to expect

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