Making Tax Digital penalties

How does the Making Tax Digital penalty system work?

Under Making Tax Digital (MTD), you must file your returns using functional and compatible software, keep digital records, and use digital links to connect your software. Failing to meet any of these requirements may result in penalties under a points-based system.

You'll receive penalty points for late submissions, not keeping digital records, and not using digital links. Once you reach a certain number of points, you'll be charged a penalty.

For annual submissions, accruing two points will result in a penalty. For those who make quarterly submissions (this will also apply to MTD for IT), four points result in a penalty. For monthly submissions, taxpayers who collect five points will be subject to a penalty.

If you reach your submission penalty threshold, you’ll incur a £200 fine.

Will Making Tax Digital penalty points expire?

Yes, MTD penalty points expire after two years. The two years are counted from the month after you received the point. So if you received the penalty point in April, the two-year timeline would begin in May. Points do not expire when you’re at the penalty threshold. You can read more about penalty expiration on the HMRC website.

How much are the new Making Tax Digital fines?

If you reach a penalty threshold, you’ll be subject to a £200 fine. Once you reach that threshold, every following failure to make a payment on time will incur a fine. The points threshold for submissions are:

• Monthly submissions: Businesses who make monthly submissions to HMRC will need to accrue five points for the £200 fine to be applied.
• Quarterly submissions: Businesses who make quarterly submissions to HMRC will need to accrue four points for the £200 penalty fine to be applied. This includes businesses who submit quarterly VAT returns and MTD for Income Tax updates.
• Annual submissions: If you make annual submissions to HMRC, you will need to accrue two points for the £200 penalty fine to be applied.

How to avoid Making Tax Digital penalties

For every submission obligation you have, you’ll have a separate points total. So, if you submit a VAT return but also need to follow MTD rules for IT and send quarterly updates, you could accrue points for both, separately.

You can avoid Making Tax Digital penalties by complying with the rules. Ensure you have compatible software and digital links in place, and that you submit your returns and updates on time.

From April 2026, self-employed people and landlords with turnover above £50,000 will be subject to the points-based penalty system.

According to HMRC, the penalties will also provide a sanction to encourage compliance with the new quarterly updates. You can read more about MTD for IT penalties here.

Will HMRC waive penalties?

Taxpayers have a right to appeal points and penalties for MTD. This does not guarantee that HMRC will waive penalties. You’ll need to use the reviews and appeals process, and have a reasonable excuse for missing a deadline.

HMRC can use their discretion not to levy a point or issue a penalty in particular circumstances. They'll make these decisions based on published guidance.

Conclusion on MTD penalties

With the points-based model now in place, taxpayers who are consistently compliant but make the occasional error won’t be unduly penalised. Those who are consistently non-compliant with MTD rules or deadlines will face penalties and sanctions.

If you want to learn more about how to comply with MTD rules and avoid penalties, read our guide to MTD for businesses or explore our Making Tax Digital resource hub for small business owners.

For more information on how Making Tax Digital impacts accountants and bookkeepers, take a look at our expert MTD resource hub. You can also learn more about requirements for MTD for Income Tax on our MTD for IT resource hub.