MTD Penalties and the Points System Explained
Quick Answer
HMRC uses a points-based penalty system for MTD, meaning you won't get an automatic fine for your first late quarterly update, and there is a penalty grace period for the 2026/27 tax year.
If you are worried about making a mistake and getting hit with a massive fine, take a deep breath. HMRC knows that Making Tax Digital (MTD) is a big change.
To make things fairer, they have introduced a points-based penalty system for late submissions.
How the points system works
Think of it like points on a driving licence. If you miss a deadline for a quarterly update, you receive one penalty point. You do not get an automatic fine.
You will only face a financial penalty (currently £200) if you reach the penalty threshold. For annual submissions, the threshold is two points.
Late submission penalties (points) are completely separate from late payment penalties (fines for not paying your tax bill on time).
The grace period for 2026/27
Because this is a new system, HMRC is expected to offer a grace period for the first year of MTD for Income Tax (starting April 2026). This means they will likely be lenient with late submission penalties while you get used to the new quarterly reporting rules.
How to avoid MTD penalties
The best way to avoid points and fines is to make submitting your updates as easy as possible.
If you use software that complicates the process, you are more likely to put it off and miss the deadline. By using a simple bridging tool, you can keep your existing records and send your update in seconds.
Ready to comply with MTD?
Abridge makes it easy to submit your spreadsheet to HMRC.
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Ready to comply with MTD?
Abridge makes it easy to submit your spreadsheet to HMRC.