Income Tax penalties
Understand what happens if an MTD deadline is missed.
Late quarterly updates, a late annual tax return and late payment are treated differently. This page explains the broad position and links directly to HMRC for the detailed rules.
General information only - last checked against HMRC guidance on 23 October 2026. Budget announcement of 28 October 2026 added on 10 November 2026.
The special position for 2026 - 27: HMRC will not apply penalty points for late quarterly updates for this tax year. You must still keep digital records and send every required update before you can submit the annual tax return.
Joining from April 2027? The Budget on 28 October 2026 announced that people who must start using MTD for Income Tax from 6 April 2027 will not get penalty points for late quarterly updates in the 2027 - 28 tax year either. This is subject to legislation. You must still send every update.
This concession does not make the annual tax return optional. Penalty points can still apply if the 2026 - 27 tax return is submitted late.
Late quarterly updates or tax returns
The late-submission system is points based. Once these first-year concessions end, each missed quarterly-update deadline normally adds one point. A late annual tax return can also add a point.
The usual threshold for someone required to use MTD for Income Tax is four points. Reaching it brings a £200 penalty. Each further missed submission deadline while at the threshold brings another £200 penalty.
You can receive only one point for a deadline, even if updates for more than one business are late.
Paying tax late is separate
Late-payment penalties are not points based. They apply separately to each late payment and depend on how long the amount remains unpaid. HMRC also charges late-payment interest from the first day.
If you cannot pay on time, contact HMRC as soon as possible. An agreed payment plan can pause late-payment penalties from the date you contact HMRC, provided you keep to the plan.
How penalty points are removed
Below the four-point threshold, HMRC normally removes each point automatically 24 months after the missed deadline.
Once the threshold has been reached, individual points do not simply expire. To clear them all, you normally need to meet every quarterly-update and annual-return deadline for 12 months and submit anything outstanding from the previous 24 months.
Different circumstances can change the position
- Volunteers have separate penalty guidance and a different points threshold.
- MTD for VAT penalty points are separate from MTD for Income Tax points.
- Current Self Assessment penalties can still apply to returns for earlier tax years.
- If you become exempt from MTD, the penalty rules applying to you can change.
If HMRC issues a point or penalty you disagree with, the notice will explain how to appeal.
If you think a deadline may be missed
- Do not wait for a penalty notice - complete the submission or payment as soon as you can.
- Check which deadline has been missed: a quarterly update, annual tax return or tax payment.
- Contact HMRC promptly if payment is the problem.
- Keep evidence of circumstances that may support an appeal.