Penalties
For taxpayers within MTD for Income Tax, late submission penalties will follow a points-based system, similar to the approach introduced for VAT. Under this system, no financial penalty is charged for the first missed deadline. Instead, a penalty point is issued, and once a threshold is reached, typically four points for quarterly submissions or two for annual returns, a £200 penalty is applied.
Further missed deadlines after reaching the threshold will each trigger an immediate £200 penalty. Penalty points can be reset if all submissions are made on time for a sustained period, twelve months for quarterly filers and twenty-four months for annual filers.
Late payment penalties are also changing, with charges now based on how long the payment is overdue. For the 2024-2025 tax year, a 2 percent penalty applies after fifteen days, increasing to 4 percent after thirty days, plus daily interest thereafter. For the 2024-2025 tax years onwards, these penalties increase to 3 percent after fifteen days and 6 percent after thirty days, plus daily interest thereafter as outlined below. These penalties can be avoided if a Time to Pay arrangement is agreed with HMRC before the relevant deadline.
There are no changes to penalties for failing to keep adequate records. HMRC may charge up to £3,000 per failure, including not maintaining digital records or breaking digital links within compatible software.
Inaccuracy penalties remain unchanged and apply only to the final MTD tax return, not to the quarterly updates.
There are no specific penalties for failing to notify HMRC about joining MTD for Income Tax. However, standard self-assessment failure-to-notify penalties still apply.
If a taxpayer joins MTD for Income Tax voluntarily or during the testing phase, the new penalty rules apply from the date of joining. However, penalty points for quarterly updates will only be issued once MTD for Income Tax becomes mandatory. Points will still apply for late year-end submissions, regardless of whether a taxpayer joined voluntarily or were mandated to do so.
Penalty points are calculated separately for each type of tax meaning that points accrued for late VAT submissions will not affect the taxpayer’s penalty record for MTD Income Tax, and vice versa.
The following table outlines the penalty points system:
| |
Voluntarily opted into MTD for Income Tax (including testing phase) |
Mandated into MTD for Income Tax |
| Points for late submission |
- Points received only for year-end submission.
- No points for quarterly updates.
|
Points received for both year-end submission and quarterly updates. |
| Threshold |
2* |
4 |
| To reset the penalty position |
You must:
- Make all submissions on or before the due date for 24 months, and
- Submit all returns required for the previous 24 months.
|
You must:
- Make all submissions on or before the due date for 12 months, and
- Submit all returns required for the previous 24 months.
|
*NB: Lower threshold than for taxpayers mandated into MTD for Income Tax, because penalty points only accrue for year-end submission for those in MTD for Income Tax voluntarily.
Under the new late payment penalty regime, for the tax years 2025-2026 onwards, penalties are issued based on the number of days which the payment is overdue as follows:
| Date payment is overdue |
Penalty charges |
| 15 days or less |
No penalty charge. |
| 16 days – 30 days (inclusive) |
3 percent of the tax outstanding on the 15th day. |
| 31 days or more |
- 3 percent of the tax outstanding on the 15th day;
- An additional 3 percent of the tax outstanding on the 30th day;
- An additional 10 percent per annum charge will apply until the payment is made.
|
In addition to penalties, interest will continue to be charged on any late payments, as is currently the case.
LOADING...