MTD penalties: the points system, and why 2026/27 is free

MTD replaced the old flat £100 fine with two separate systems: points for filing late, and interest-style charges for paying late. They work differently, and the one that costs real money is the second.

The headline: quarterly updates are penalty-free in 2026/27

HMRC has confirmed there are no penalties for missing a quarterly update deadline in the 2026 to 2027 tax year. That is a deliberate soft landing for the first wave of joiners — not a permanent feature.

It does not extend to everything. Your tax return and your payments are still on the normal footing. Miss the 31 January payment and you will be charged, first year or not.

Late submission: how points work

• Each missed quarterly update or tax return deadline = 1 point.
• At 4 points you get a £200 penalty.
• Once you are at the threshold, every further late submission is another £200 — the points don't keep climbing, the fines do.
• Below the threshold, each point is removed automatically 24 months after the missed deadline.

Four points is one year of missed quarters. Someone who ignores MTD for a full year and then files everything at once has bought themselves a £200 penalty and a two-year wait for the points to clear.

Late payment: the part that scales

Payment penalties are charged on the tax you owe, so they grow with the bill. For the 2026/27 tax year:

From 2027/28 the two fixed charges rise from 3% to 4% each. The 10% annual rate stays.

On a £4,000 bill, thirty-one days late costs roughly £240 in fixed charges before the daily rate even starts. That is the penalty worth avoiding — not the £200.

What this means in practice

• Don't treat 2026/27 as a year off. The penalty-free window applies to quarterly updates only, and it teaches habits you'll need in April 2027.
• If money is tight, still file. Filing late and paying late are penalised separately. Filing on time costs nothing and stops the points.
• If you can't pay, tell HMRC. A Time to Pay arrangement agreed before the deadline stops late-payment penalties accruing.

The honest version

The points system is not what should worry you. Four missed quarters to reach £200 is a low-stakes deterrent. What should worry you is arriving at 31 January with no idea what you owe — because you never kept the records, so you never saw the number coming, and the percentage charges are already running.

That is the actual argument for keeping digital records as you go: not fear of a fine, but knowing the bill before it's due. See the quarterly deadline calendar for the dates, or estimate your bill now.