Changes to penalties for MTD for IT

Making Tax Digital for Income (MTD for IT) is bringing a colossal change to reporting for many people. While putting together our guide to MTD for IT, it became clear that we should make a separate post about the penalties, as there is much to cover. Please read our other article first (click here) and find out if you will be affected.

Filing Penalty Points

To encourage timely submissions, HMRC has introduced a points-based penalty system:

• Late Submission Penalties: You will incur a penalty point for each missed submission deadline. Accumulating a certain number of points will result in a £200 fine. The thresholds are:

  • Annual Submissions: 2 points

  • Quarterly Submissions: 4 points

  
  

  Once the threshold is reached, a £200 penalty is issued, with an additional £200 fine for each subsequent late submission. Points expire after the following periods of on-time compliance:

  • Annual Submissions: 24 months

  • Quarterly Submissions: 12 months

If you have read our other post about MTD, then you will know that HMRC will require you to file 5 times a year; this is made up of 4 quarterly updates and then a final declaration.

Here's an example of how the new points system works. If you miss 2 years' worth of reporting under MTD for IT then you would have missed 8 quarterly filings and 2 annual filings. The first 4 missed quarters will only result in a £200 fine, but now that 4 have been accumulated the following 4 result in £200 each, totalling £1000 for all 8 missed Quarters.

The 2 missed annual filings will result in an additional £200 fine.

Ultimately, HMRC would impose £1200 in fines for the 2 years worth of missed filings and unless the taxpayer can make the points expire by filing on time for the following 12-24 months, then each point accumulated will result in an additional £200 fine from then on.

Payment Penalty Rates

HMRC are also changing the penalties for late payments. The Spring Budget 2025 announced the following penalty rates for late payers:

Time After Due Date	Penalty
Up to 15 days late	No penalty if paid or a Time to Pay (TTP) arrangement is agreed
16 to 30 days late	3% of the outstanding tax (as of day 15)
31 days late	An additional 3% of the outstanding tax (as of day 30)
From day 31 onwards	A daily accruing penalty of 10% per year until paid

As can be seen, the penalties accrue a lot quicker than before, putting pressure on timely pay.

REMEMBER - Even if you set up a TTP arrangement within the first 15 days, HMRC will still charge interest on late tax payments to compensate for the delay, based on the Bank of England rate.

MTD for IT will bring new challenges for many people, and as we have seen before, HMRC may still make changes to what they have currently proposed for MTD. Short and Sons Accountants are here to tackle those challenges and ensure you can continue focusing on your business without letting this tax change interrupt you.