MTD Penalties, Points & Interest Charges Explained

The Points-Based Penalty System

From April 2026, HMRC uses a points-based system for late MTD quarterly updates. This replaces the fixed penalty model used for Self Assessment.^[4]

How Points Accumulate

Each time you miss a quarterly update deadline, you receive one penalty point
Points accumulate over time until you reach the penalty threshold
For quarterly obligations (4 submissions per year), the threshold is 4 points
When you hit the threshold, HMRC issues a £200 financial penalty
After that, every further late submission also triggers £200

Example: You miss Q1 and Q3 in year one (2 points), then Q1 in year two (3 points), then Q2 in year two (4 points — threshold reached). The Q2 miss triggers a £200 penalty, and any further late submissions also cost £200 each.

How to Reset Your Points

Points don’t last forever. You can reset your total back to zero by achieving a period of consistent compliance:^[3]

Submit all updates on time for 12 consecutive months (if below the penalty threshold)
If you’re at or above the threshold, you must submit on time for 24 consecutive months to reset
You must also have submitted any outstanding returns

Late Payment Penalties

Separate from the points system, HMRC charges penalties for paying your tax late:^[1]

How Late	Penalty
Up to 15 days	No penalty (grace period)
16–30 days	Calculated at an annualised rate on the amount outstanding
31+ days	A further charge at an annualised rate, applied daily until paid

The annualised penalty rate is set by HMRC and is linked to the Bank of England base rate.

Interest on Late Payments

In addition to penalties, HMRC charges interest on any tax paid late. The interest rate is the Bank of England base rate plus 2.5%.^[2]

Interest accrues daily from the payment due date until the tax is paid in full. It applies whether or not you’ve received a penalty.

Tip: If you can’t pay in full by the deadline, contact HMRC to set up a Time to Pay arrangement. This won’t stop interest accruing, but it can prevent additional penalties and enforcement action.

Reasonable Excuses

You won’t receive a penalty point if you have a reasonable excuse for missing a deadline. HMRC accepts excuses such as:^[5]

Serious illness or bereavement
Fire, flood, or other disaster
HMRC system or service errors
Postal delays (where physical correspondence was required)

A reasonable excuse must be genuine, and the late submission must be made as soon as reasonably possible after the excuse no longer applies.

“I forgot” or “I didn’t know” is generally not accepted as a reasonable excuse.

How to Appeal a Penalty

If you believe a penalty has been issued unfairly, you can appeal:^[5]

Appeal online through your HMRC online account, or in writing
Explain your reasonable excuse and provide supporting evidence
If HMRC rejects your appeal, you can request a statutory review
If still unsatisfied, you can escalate to the First-tier Tribunal (Tax Chamber)

Appeals should be made within 30 days of the penalty notice.

How to Avoid Penalties

The simplest way to avoid penalties is to file on time, every time. Even if your figures are estimates, filing on time prevents penalty points. You can always amend your quarterly updates later. Submitting your updates online takes only a few minutes once your records are up to date.

Set calendar reminders for each quarterly deadline
Use software that sends deadline reminders (like #GoFile)
File early — you don’t have to wait until the deadline
Keep your digital records up to date throughout the quarter

Frequently Asked Questions

How do MTD penalty points work?

Each time you miss a quarterly update deadline you receive one penalty point. For quarterly obligations, the threshold is 4 points. When you reach it, HMRC issues a £200 penalty and every further late submission also costs £200.

How do I reset my MTD penalty points?

If you are below the threshold, submit all updates on time for 12 consecutive months. If you are at or above the threshold, you must submit on time for 24 consecutive months to reset to zero.

What happens if I pay my tax late?

HMRC allows a 15-day grace period with no penalty, then charges an annualised penalty rate from day 16. Interest at the Bank of England base rate plus 2.5% also accrues daily on the outstanding amount.

Can I appeal an HMRC penalty?

Yes. You can appeal online or in writing within 30 days of the penalty notice if you have a reasonable excuse such as serious illness, bereavement, or an HMRC system error.

Sources

Penalties for late filing and late payment (Self Assessment) — GOV.UK
Interest rates for late and early payments — GOV.UK
HMRC penalties: an overview — GOV.UK
Overview of Making Tax Digital — GOV.UK
Appeal a Self Assessment penalty — GOV.UK