Quick answer:
Under Making Tax Digital, late submissions earn penalty points rather than an immediate fine. You get one point per late submission, and once you reach four points a £200 penalty applies. Keeping records current is the simplest way to avoid points entirely.
How the points system works
HMRC has moved to a points-based model for late filing. Each time a submission is late you accrue a point. Points build up, and only when you hit the threshold ,four points for quarterly filers ,does a £200 penalty land. Points can expire after a period of good compliance, so getting back on track resets your risk over time. For the wider context of the new regime, read our complete 2026 MTD guide.
The softer first year
HMRC has confirmed a soft-landing period for those joining in April 2026: no penalty points will be issued for late quarterly updates during the 2026/27 tax year. Because MTD requires four quarterly updates a year, this effectively makes the entire first year of quarterly submissions penalty-free for lateness.
However, the soft landing has two important limits. It does not cover your Final Declaration (due 31 January 2028), file that late and points apply under the normal rules. And it does not cover late payments, which run on a separate percentage-based penalty regime. So while quarterly lateness is forgiven in year one, year-end filing and paying your tax on time still matter.
The full penalty rules sit within HMRC’s guidance on using MTD for Income Tax.
Why MTD makes late bookkeeping more expensive
The old system had one annual deadline. MTD has five touchpoints a year (four quarters plus finalisation), so there are simply more dates to miss. The practical upshot: a system that keeps your books current automatically is worth far more than it used to be, because it removes the main cause of late submissions.
How to avoid penalty points entirely
- Use software that imports and categorises transactions continuously, so nothing piles up.
- Turn on deadline reminders and act on flags as they appear.
- Keep business and personal finances separate to reduce review time each quarter.
- Treat each quarterly update as a quick review, not a project.
The simplest way to avoid points is to submit on time, see our quarterly updates walkthrough. Keeping digital records the way HMRC requires is what stops submissions piling up, and helps you stay stress free.
When do penalties actually start
When penalties actually start (for an April 2026 joiner, not in HMRC’s testing pilot):
- Quarterly updates for 2026/27: no penalty points for late filing (but they must still be submitted).
- Final declaration for 2026/27: standard late-filing penalties apply from 31 January 2028.
- Quarterly updates from 2027/28: one point each if late; £200 once you hit four points.
How CleanBooksAI keeps you penalty-free
CleanBooksAI keeps your books up to date in the background and reminds you before each deadline, so submitting on time is the path of least resistance. A penalty tracker shows where you stand at a glance.
