MTD for Income Tax penalties: points, late payment and the 2026-27 soft landing
Last updated: 17 October 2026
In the 2026-27 tax year, HMRC won't give you a penalty for a late quarterly update under Making Tax Digital (MTD) for Income Tax, but a late tax return or late payment can still be penalised. From the 2027-28 tax year, each missed quarterly update or tax return deadline earns a penalty point, and reaching 4 points means a £200 penalty.
This guide explains how the new penalties work for sole traders and landlords using MTD for Income Tax: the soft landing this year, the points system, late payment penalties and interest, how points are removed, and how to appeal. Everything here comes from HMRC's guidance on penalties for Making Tax Digital for Income Tax unless another GOV.UK page is linked.
Key facts
| Late quarterly updates in 2026-27 | No penalties. You still have to send them before you can submit your tax return |
|---|---|
| Late tax return in 2026-27 | A penalty point |
| From 2027-28 | A point for each missed quarterly update or tax return deadline |
| Penalty threshold | 4 points, then £200, and £200 for each further missed deadline |
| Points per deadline | One at most, even if you have more than one business |
| Late payment | Penalties depend on how late you pay, plus late payment interest from day one |
| Volunteers | No penalties for late quarterly updates; 2-point threshold for late tax returns |
| Next deadline | 7 November 2026 (a Saturday, so aim to send by Friday 6 November) |
When the new penalties apply to you
The new penalties replace the old late submission and late payment penalties for your personal tax return from the tax year you join MTD for Income Tax. For most people who had to start on 6 April 2026, that's the 2026-27 tax year.
Your earlier returns stay under the old rules. HMRC's example: if you started MTD for Income Tax on 6 April 2026, the current Self Assessment penalties still apply to your 2025-26 tax return, due by 31 January 2027.
The new penalties don't apply to tax returns you send on behalf of a non-resident company, a trust or estate, or a partnership. The current penalties still apply to those.
Not sure whether you're in yet? See Do I need MTD for Income Tax?
The 2026-27 soft landing for quarterly updates
HMRC says there are no penalties for missing a quarterly update deadline in the 2026-27 tax year. Its quarterly updates guidance puts it the same way: no penalty points for late quarterly updates this year.
That doesn't make the updates optional. You still need to keep digital records and send every quarterly update, because you can't submit your 2026-27 tax return until you have. Penalty points do still apply to a late tax return for 2026-27, which is due by 31 January 2028.
The quarterly deadlines are 7 August, 7 November, 7 February and 7 May. 7 November 2026 falls on a Saturday, so aim to send your update by Friday 6 November. All the dates are in MTD for Income Tax deadlines 2026-27, and what to send for this one is in our 7 November deadline guide.
If HMRC signed you up part way through the year, its digital records guidance says to catch up your records from the start of the tax year, and confirms there are no penalties for missed quarterly update deadlines in 2026-27.
Late submission penalties: the points system
Late submission penalties are points based. You get a penalty point for each deadline you miss:
- each tax return deadline, from the tax year you join
- each quarterly update deadline, for tax years after 2026-27
When you reach the 4-point threshold, you get a £200 penalty. After that, you get another £200 penalty each time you miss a submission deadline.
One point per deadline
You can only get one penalty point per deadline. HMRC says this applies even if you have more than one business and send more than one quarterly update late.
So if, in 2027-28, you're a sole trader who also lets property and you send both quarterly updates late for the same deadline, that's one point, not two. Our guides for sole traders and landlords explain which updates you send.
An example from 2027-28
Using HMRC's rules, here's how points could build up if you're required to use MTD for Income Tax and you're late with these deadlines in 2027-28:
| Deadline missed | Points | Penalty |
|---|---|---|
| 1st quarterly update | 1 | None |
| 2nd quarterly update | 2 | None |
| 3rd quarterly update | 3 | None |
| 4th quarterly update | 4 | £200 |
| 2027-28 tax return | Already at threshold | £200 |
This example is ours. It applies HMRC's 4-point threshold and assumes none of the points has expired in the meantime.
VAT points are separate
If you're also registered for VAT, your penalty points for MTD for Income Tax are kept separate from your VAT penalty points.
How penalty points are removed
If you're below the 4-point threshold, HMRC removes each point automatically 24 months after the deadline you missed.
If you reach the threshold, points don't drop off one at a time. To remove all of them you need to:
- send your quarterly updates and submit your tax return on time for 12 months
- send any outstanding quarterly updates and tax returns for the previous 24 months
You can sign in to your HMRC online services account to see when your points will be removed. HMRC also says that in some exceptional circumstances, such as insolvency, it may cancel a penalty or point, or remove all your points.
Late payment penalties
Late payment penalties are separate from points. They apply to each payment not paid in full by its due date, including a balancing payment on your tax bill and amounts due after an amendment or assessment. They don't apply to payments on account.
The amount depends on how late you pay and which tax year the payment is for:
| How late | 2026-27 tax year | 2027-28 tax year |
|---|---|---|
| Up to 15 days | No penalty | No penalty |
| 16 to 30 days | 3% of the tax owed at day 15, or no penalty if it's your first year | 4% of the tax owed at day 15, or no penalty if it's your first year |
| 31 days or more | 3% of the tax owed at day 15, and 3% of the tax owed at day 30, plus 10% a year on the outstanding amount, charged daily from day 31 until paid or for up to 2 years | 4% of the tax owed at day 15, and 4% of the tax owed at day 30, plus 10% a year on the outstanding amount, charged daily from day 31 until paid or for up to 2 years |
Your first year
In your first year of the new penalties, you have 30 days from the due date to pay in full or contact HMRC to set up a payment plan before penalties start. After the first year, that drops to 15 days. You only get the 30-day period once. HMRC says that if you volunteered first and are now required to use MTD for Income Tax, you stay on 15 days.
Late payment interest
HMRC also charges late payment interest from the first day a payment is late until you pay in full. MTD for Income Tax doesn't change how interest works. The current rate is on HMRC's interest rates page.
MTD for Income Tax doesn't change when you pay, either. The tax return and any tax you owe are both due by 31 January after the end of the tax year.
If you can't pay on time
Contact HMRC as soon as possible. HMRC says you can avoid penalties by getting in touch to discuss a payment plan and paying in instalments. If a plan is agreed and you keep to it, penalties are paused from the date you contacted HMRC. You may still get a penalty if a plan can't be agreed or you don't keep to it. There's more on what to do if you can't pay.
Appeals and reasonable excuses
HMRC sends you a letter if you get a late submission penalty point, a £200 late submission penalty or a late payment penalty. If you don't agree with it, you can appeal, and the letter tells you how.
HMRC's general guidance on reasonable excuses says you'll usually need one to challenge a penalty for a late return or payment. Examples it gives include a close relative dying shortly before the deadline, an unexpected stay in hospital, your computer or software failing while you were preparing your return, and problems with HMRC's online services. It says not getting a reminder from HMRC, or finding the online system too difficult, won't count. Whatever the reason, you must send the return or payment as soon as you're able to.
GOV.UK doesn't set out how reasonable excuse applies to each type of MTD for Income Tax penalty. If you're thinking of appealing, speak to an accountant or follow the steps in HMRC's letter.
If you're volunteering
If you signed up before you had to, HMRC's penalties guidance for volunteers applies instead:
- you won't get penalties for missing quarterly update deadlines while you're volunteering
- late tax returns get a point each, and the threshold is 2 points, then a £200 penalty
- you agree to the new penalties when you sign up, and you can't go back to the old ones, even if you stop volunteering
If you volunteer and then become required to use MTD for Income Tax, for example from 6 April 2027, your threshold rises to 4 points and late quarterly updates start earning points. If you already have a point, HMRC adds 2 so you stay the same distance from the new threshold.
If you become exempt
If you become exempt during 2026-27, you go back to the current Self Assessment penalties. If you become exempt in 2027-28, you stay on the new penalties, because HMRC says they'll apply to everyone who submits a personal Self Assessment tax return from April 2027. Your threshold drops from 4 points to 2, and any points you have are reduced so you're no closer to the new threshold. HMRC's exemptions guidance explains who can be exempt.
Staying on top of your deadlines
The simplest way to avoid points is to send each quarterly update on time, even this year when there's no penalty, so your records are up to date when your tax return is due.
You'll need compatible software. HMRC doesn't provide it, but its software finder lists recognised products, including some with a free version. Our guide to free MTD software compares a few.
Using AATAX
AATAX is on HMRC's list of recognised software for MTD for Income Tax. Its HMRC listing (reference D6Q7XM) shows sole trader, foreign property and all 16 other income items on a tax return as ready now.
The individual app is free for sole traders and landlords. There's no subscription and you don't need to give card details. You upload bank statements, receipts or spreadsheets (CSV or Excel .xlsx), AATAX reads the documents, and you review and confirm the records. Letting agent statements are read with the full rent as income and the agent's fees as separate costs. At year end, the app shows HMRC's tax calculation before you send your final declaration, so you can see what you're likely to owe before the 31 January payment deadline.
If an accountant looks after your tax, they can run MTD for Income Tax for you, and you can point them to AATAX for accountants.
Frequently asked questions
Is there a penalty for a late quarterly update under MTD for Income Tax in 2026-27?
No. HMRC won't give penalties for missing a quarterly update deadline in the 2026-27 tax year. You still have to send every update before you can submit your tax return, and a late 2026-27 tax return still gets a penalty point.
How do MTD for Income Tax penalty points work?
You get one point for each missed deadline: tax returns from the year you join, and quarterly updates from 2027-28. At 4 points you get a £200 penalty, then another £200 for each further missed deadline. Points below the threshold expire after 24 months.
If I have two businesses, do I get two points for one late quarter?
No. You can only get one penalty point per deadline, even if you send more than one quarterly update late.
What is the late payment penalty under MTD for Income Tax?
For 2026-27, nothing if you pay within 15 days, then 3% of the tax owed at day 15, another 3% of the tax owed at day 30, and 10% a year from day 31. In your first year, there's no penalty until day 30. The rates rise to 4% for 2027-28. Late payment interest is charged from the first day.
How do I get rid of MTD for Income Tax penalty points?
Below 4 points, each point expires 24 months after the missed deadline. At 4 points, you need to meet every deadline for 12 months and send anything outstanding from the previous 24 months. Then all your points are removed.
Can I appeal an MTD for Income Tax penalty?
Yes. HMRC's letter about the penalty or point tells you how. You'll usually need a reasonable excuse, such as a serious illness or a software failure while preparing your return. If you're unsure whether your reason counts, speak to an accountant.
Get started
AATAX's individual app is free for sole traders and landlords. Upload your statements and receipts, check the figures and send your quarterly updates and tax return yourself, with no subscription and no card details. Get started free
Sources (GOV.UK, checked 10 October 2026)
- Penalties for Making Tax Digital for Income Tax
- Penalties for Income Tax Self Assessment volunteers
- Use Making Tax Digital for Income Tax: Send quarterly updates
- Use Making Tax Digital for Income Tax: Create digital records
- Disagree with a tax decision or penalty: Reasonable excuses
- If you cannot pay your tax bill on time
- HMRC interest rates for late and early payments
- Self Assessment tax returns: Penalties
- Find out if you can get an exemption from Making Tax Digital for Income Tax
- Find software that works with Making Tax Digital for Income Tax (HMRC software finder, including AATAX's listing)
This page is general guidance, not tax advice. If you're unsure how the rules apply to you, speak to an accountant or contact HMRC.