With Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) officially mandatory for individuals and landlords earning over £50,000, the landscape of UK tax compliance has shifted dramatically. Along with digital record-keeping requirements, HMRC has introduced a brand-new, overhauled penalty system.
The old system of flat-rate, immediate fines is gone. In its place is a points-based structure for late filings and a tiered percentage system for late payments. While it is designed to be fairer to occasional mistakes, persistent non-compliance can rapidly escalate into severe financial costs.
As premier MTD Accountants Peterborough, the team at Gross Klein Wood is here to break down exactly how these changes affect you, how the points build up, and how you can safeguard your business from penalties.
Late Submissions: The Points-Based System
Under the current rules, missing a digital filing deadline no longer triggers an automatic financial penalty. Instead, HMRC operates a system similar to driving license penalty points.
Each time you miss a submission deadline; such as a quarterly update or your final end-of-year declaration, you will receive 1 penalty point.
The Fine Threshold
For quarterly filers mandated under MTD, the financial penalty is triggered once you hit 4 points.
The Financial Cost
When you reach the 4-point threshold, you will receive an immediate £200 fine. Crucially, every single late submission after you hit that threshold triggers an additional £200 penalty.
The 2026/27 “Light Touch” Exemption: HMRC has introduced a brief easement period. If you are mandated into MTD ITSA, no late submission penalty points will be issued for missing your first four quarterly updates. However, this “light touch” does not apply to your final year-end tax return, which must still be submitted flawlessly and on time.
If you are feeling overwhelmed by tracking these digital deadlines, partnering with qualified MTD Accountants Peterborough ensures your filings are submitted well ahead of time, keeping your points balance at zero.
Late Payments: Staged Percentage Charges
Late payment penalties are handled entirely separately from submission points. If you owe tax at the end of the year and miss the payment deadline, the penalties accumulate over time based on how long the balance remains unpaid:
- Up to 15 days late: No penalty is applied (though late payment interest begins accruing immediately).
- 16 to 30 days late: You will face a penalty of 3% of the total tax owed on day 15.
- 31 days or more late:
- 31 days or more late: The penalty increases. You will owe a penalty based on the tax outstanding at day 15, plus a further penalty based on the tax outstanding at day 30 (3% for the 2026/27 tax year). On top of that, a 10% per annum penalty charge will accrue daily on the remaining balance until it is paid in full.
Note: Late payment penalties will increase from 3% to 4% starting in April 2027 when the system expands to include all remaining Self-Assessment taxpayers.
The Sneaky “Record-Keeping” Trap
Many taxpayers don’t realise that you can still be penalised even if you submit your data exactly on time. HMRC can issue a severe record-keeping penalty of up to £3,000 per quarter if you fail to maintain your digital records using functional, MTD-compatible software. Manual bookkeeping in a standard spreadsheet without digital links to an approved bridging software or platform violates the rules.
How to Wipe Your Points Clean
If you have already accumulated penalty points, they will not stay on your record forever. If you are below the 4-point threshold, individual points naturally expire after 24 months from the missed deadline date.
However, if you have hit the maximum 4-point threshold, the only way to reset your balance to zero is by meeting a strict compliance period. You must submit all your quarterly and annual filings completely on time for a continuous 12-month period, and ensure any backlog of missing returns from the past 24 months has been cleared.
Stay Compliant with Gross Klein Wood
Transitioning to Making Tax Digital does not have to be stressful or open your business up to expensive errors. At Gross Klein Wood, we combine traditional local accounting expertise with cutting-edge modern financial technology to seamlessly transition your business or property portfolio into the digital era.
As dedicated MTD Accountants Peterborough, we handle your record-keeping, set up compliant digital links, and manage your quarterly updates so you can focus on running your business without fear of HMRC letters.
Don’t wait for the points to add up. Contact Gross Klein Wood Accountants today on 01733 343 275 or visit us at our Tesla Court office in Peterborough to book your MTD consultation.
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