HMRC rebuilt its penalty system for Making Tax Digital — and, credit where due, the new regime is fairer than the old automatic £100 fine. It works like driving licence points: occasional lateness costs nothing; a pattern costs real money. But with four (or eight) deadlines a year instead of one, there are simply more chances to slip.
Here is precisely how the points and fines work, what late payment now costs, and the boring habits that keep you permanently clean.
Late Submissions: The Points System
- Each missed quarterly update (or final declaration) deadline = 1 point.
- For quarterly filers the threshold is 4 points — reaching it triggers a £200 penalty.
- While you remain at the threshold, every further late submission is another £200.
- Points relate to each obligation cycle — a consultant-landlord running two businesses has two cycles, and each missed deadline scores its own point.
How Points Disappear
- Below the threshold: an individual point expires automatically after 24 months.
- At the threshold: expiry stops. To reset to zero you must complete a 12-month clean streak (every submission on time) and bring all outstanding submissions up to date. Only then does the £200-per-late-filing treadmill stop.
The design intent is clear: one chaotic quarter is forgiven; a chaotic year is not.
Late Payment: A Separate (Sharper) Regime
Points cover late filing. Late payment of the tax itself is penalised separately, and since April 2025 the rates bite quickly:
| Tax still unpaid… | Penalty |
|---|---|
| 15 days after the due date | 3% of the outstanding amount |
| 30 days after | a further 3% |
| Day 31 onwards | 10% per annum, accruing daily |
Late-payment interest runs on top from day one. Two practical outs: pay something (penalties apply to the outstanding balance), and if you genuinely cannot pay, agree a Time to Pay arrangement with HMRC before day 15 — set one up and the percentage penalties stop accruing while you keep to it. Rates and rules evolve, so verify current figures on GOV.UK.
Reasonable Excuse
Points and penalties can be challenged where a reasonable excuse exists — serious illness, bereavement, HMRC system failure, fire or flood. What consistently fails: "I didn't know about MTD", "my records weren't ready", "my software subscription lapsed", or relying on a third party without oversight. In other words, the excuses the penalty system was built to price in.
The Zero-Penalty Playbook
- Diarise all five dates now — 7 August, 7 November, 7 February, 7 May, 31 January — with reminders a fortnight ahead.
- Keep records continuously. Convert each quarter's bank statements to categorised spreadsheets within days of quarter-end (BankScan AI makes that a coffee-break job), so the update itself is a five-minute submission — see the quarterly cycle guide.
- Never skip a nil quarter — quiet quarters still need an update.
- If cash is tight, act before day 15 — a Time to Pay arrangement beats a 3% ratchet.
- Check both cycles if you run a trade and property — each earns points independently.
The Cheapest Penalty Strategy Is Clean Records
Every MTD penalty starts with records that were not ready. Upload your bank statements and get categorised, submission-ready spreadsheets in seconds — free first conversion, no signup.
Try BankScan AI Free →Frequently Asked Questions
Is there a fine the first time I miss a quarterly deadline?
No — one late update earns one penalty point and nothing else. Money only enters at four points (£200), and points below the threshold expire after 24 months. The system punishes patterns, not accidents.
I file for a business and a property — can I collect points twice?
Yes. Each business's submission cycle carries its own points tally, so one bad quarter across a trade plus a rental portfolio can score two points at once. Diarise both cycles even though the calendar dates coincide.
How do I get back to zero once I hit four points?
Two conditions together: a full 12 months of on-time submissions, and everything outstanding actually filed. Until both are met you stay at the threshold and each further late submission costs another £200.
What does paying my tax a month late actually cost now?
On £5,000: 3% (£150) at day 15, another 3% (£150) at day 30, then 10% a year accruing daily from day 31 — plus interest from day one. Call it roughly £300+ for a month's delay. A Time to Pay arrangement agreed before day 15 stops the percentage penalties while you keep to it.
Will HMRC accept 'my records were a mess' as a reasonable excuse?
No — disorganised records are precisely what the regime exists to discourage. Reasonable excuse covers events genuinely outside your control (serious illness, bereavement, HMRC outages). The reliable strategy is records that are always ready, which is an automation problem, not a willpower one.
Last updated: 8 July 2026. This guide explains the Making Tax Digital rules as published by HMRC — always check GOV.UK for the latest official guidance. Read our MTD bank statement compliance guide or browse all blog posts.