New penalties for Making Tax Digital for Income Tax: What your HMRC letter means
30-second answer
If a letter has landed headed "New penalties for Making Tax Digital for Income Tax", it isn't a fine and it isn't a warning. It's HMRC confirming which set of penalty rules now applies to you, because Making Tax Digital comes with its own penalty system that replaces the Self Assessment one.
There are two versions of that letter, and they contain different rules. The quickest way to tell which one you have is the penalty point threshold. Two points means you volunteered for MTD. Four points means you were required to join.
The headline for both: a late quarterly update costs you nothing this tax year, a late tax return costs you a penalty point, and late payment is where the real money is.
Want to know which letter you've got? Start at which letter is this? Want the numbers? Jump to late payment penalties.
This guide is most relevant if you are:
- Holding a letter from HMRC headed "New penalties for Making Tax Digital for Income Tax" and wondering what you've done
- A sole trader or landlord signed up to MTD who wants to know exactly what being late costs
- Trying to work out whether a missed quarterly update deadline is a problem or not
This guide covers
This guide is provided for general information only and is based on HMRC guidance available at the time of writing.
Making Tax Digital for Income Tax brings a new penalty system with it. It replaces the late filing and late payment penalties that apply to your Self Assessment tax return, and it applies from the tax year you join MTD.
The letter is HMRC telling you that the switch has happened. If you volunteered, HMRC sends it once two things are true: you've signed up, and your records have been moved onto HMRC's new IT platform. That second part is the reason for the timing. The letter follows an administrative step at HMRC's end, not anything at yours.
So it's worth being clear about what this letter is not:
- It is not a penalty, and no money is being demanded
- It is not a warning that you're late with something
- It is not triggered by a missed quarterly update, or by anything else you have or haven't submitted
- It doesn't need a reply
Two other things the letter is quietly telling you. Your earlier tax years are untouched: if you join MTD for the 2026/27 tax year, your 2025/26 tax return, due 31 January 2027, stays under the existing Self Assessment penalties. And the new penalties only cover your personal tax return. Partnership returns, trust and estate returns and non-resident company returns all stay on the current system.
In short
This is the "here are the house rules" letter, not the "you've broken them" letter. Read it once, file it, carry on.
This is the part almost every explanation of MTD penalties gets wrong. It treats the rules as one thing. They aren't. There is one set for people who volunteered for MTD before they had to, and another for people who were required to join from April 2026. HMRC publishes them as two separate pages and sends two different letters.
Look at your letter for the penalty point threshold. It's the fastest way to tell:
- Threshold of 2 points? You have the volunteer letter
- Threshold of 4 points? You have the required letter
There's a second giveaway in the volunteer version. It includes a line saying that in future, if you are required to use Making Tax Digital, late submission penalties would apply to quarterly update deadlines too. That sentence only makes sense written to someone who isn't required yet.
If you volunteered
- Your penalty point threshold is 2 points
- Points apply to late tax returns only. While you're volunteering, a late quarterly update doesn't earn a point
- If you later become required to use MTD, from the 2027/28 tax year your threshold rises to 4 points and late quarterly updates start earning points
If you were required to join from April 2026
- Your penalty point threshold is 4 points
- Late quarterly updates earn no points for the 2026/27 tax year, and then start counting from the following tax year
- You only ever get one point per deadline, even if you run several businesses and file several updates late
The late payment rules are the same for both groups. It's only the submission side that differs.
The system works like points on a driving licence. You collect them one at a time, and nothing happens financially until you hit the threshold.
- Miss a submission deadline that counts, and you get one penalty point
- Reach your threshold, and you get a £200 penalty
- After that, a further £200 every time you miss another submission deadline. There's no waiting for a fresh threshold
- If you're also registered for VAT, your MTD Income Tax points are counted separately from your VAT points
The design is deliberately forgiving of a one-off slip and unforgiving of a habit. Under the old Self Assessment rules, a tax return one day late cost £100 straight away. Under these rules, your first late return costs nothing at all. That's a genuine improvement, as long as it doesn't lull you into a second one.
Which deadlines earn points right now
- Your tax return: yes. Due 31 January after the end of the tax year, so 31 January 2028 for the 2026/27 tax year. Miss it and you get a point, whichever letter you have
- Quarterly updates: not yet. Volunteers get no points for late updates while volunteering. People required to join from April 2026 get none for the 2026/27 tax year
Quarterly update deadlines are 7 August, 7 November, 7 February and 7 May.
The catch worth knowing
"No penalty points" is not the same as "optional". You still need to keep digital records and get your quarterly updates in, because you cannot submit your tax return until they're done.
Skipping them doesn't save you anything. It just moves the whole year's bookkeeping to the last week of January, and parks it in front of the one deadline that does earn you a point.
Late payment penalties aren't points based. They apply to each late payment on its own, and they scale with how long you take to pay. The sooner you pay, the less you pay.
What they apply to
- A balancing payment for an outstanding amount on your tax bill
- Amounts due following an amendment or an assessment on your tax return
And what they don't apply to: payments on account. If you're used to a July payment on account, it sits outside these penalties. Late payment interest still runs on it, but the percentages below don't.
The numbers for the 2026/27 tax year
- Paid within 15 days of the due date: no penalty
- 16 to 30 days late: 3% of the tax owed at day 15
- 31 days or more late: 3% of the tax owed at day 15, plus 3% of what is still owed at day 30. On top of that, an annual rate of 10% on the outstanding amount, charged daily from day 31 until you pay, for up to two years
From the 2027/28 tax year, those 3% charges become 4%. The 10% annual rate stays as it is.
Late payment interest is charged as well, from the first day your payment is late until you pay in full. That's separate from the penalties and hasn't changed.
The first-year concession, and its small print
In your first year under the new penalties, you get 30 days from the due date rather than 15 to either pay in full or contact HMRC to set up a payment plan. After 30 days, penalties start. From your second year onwards it drops back to 15 days.
Read that carefully, because it's narrower than it sounds. If you sail past day 30, you're charged the day 15 amount and the day 30 amount anyway, exactly as though the concession never existed. It only helps if you pay somewhere between day 16 and day 30.
You also only get it once. If you volunteered, used your 30 days, and later become required to use MTD, you stay on 15 days.
The honest summary
The new system is kinder than the old one if you file late and harsher if you pay late. The old surcharge didn't bite until 30 days. This one starts at 15, and adds a second charge at 30.
If you only remember one thing from your letter, make it this: the filing deadline is forgiving, the payment deadline is not.
The letter is a summary, and a fairly good one. But a few things sit in HMRC's fuller guidance rather than on the page in your hand, and they're the ones people are most surprised by later.
1. For volunteers, this was a one-way door
You had to actively agree that the new penalties would apply to you when you signed up. There's a question in the sign-up service, and most people tick it without a second thought. You cannot change your mind afterwards, and you cannot go back to the old penalties even if you stop volunteering.
If an agent signed you up, they were able to agree on your behalf. So it's entirely possible to be bound by this without remembering the moment it happened.
2. The 30-day first year isn't mentioned
The letter sets out the steady state, where the clock starts at 15 days. It doesn't tell you about the 30 days you get in your first year under the new penalties. Useful to know, as long as you also know how narrow it is.
3. Points get harder to shift once you reach the threshold
The letter mentions that points are removed automatically after 24 months. True, but only while you're below the threshold. Reach it and the automatic removal stops. See getting points removed for what's needed instead.
4. Your points can go up without you doing anything wrong
If you volunteered with a penalty point on your record and then become required to use MTD, your threshold moves from 2 points to 4, and your points are increased to match. One point becomes three.
It looks alarming and it isn't. You're still exactly one point away from the threshold, same as before. The adjustment exists so that a change in your status doesn't quietly move you closer to a £200 penalty.
There are two very different answers here, depending on whether you've hit your threshold.
Below the threshold
Nothing to do. Each point is removed automatically 24 months after the deadline you missed. You can sign in to your HMRC online services account to see the date a point is due to drop off.
At the threshold
Automatic removal stops, and points don't come off one by one. Instead you clear the whole record at once by meeting two conditions.
If you volunteered, you need to submit your next 2 tax returns on time, and submit any outstanding tax returns for the previous 24 months.
If you were required to join, you need to send your quarterly updates and submit your tax return on time for 12 months, and send any outstanding quarterly updates and tax returns for the previous 24 months.
In exceptional circumstances, such as insolvency, HMRC may cancel a penalty or a penalty point, or remove all your points.
Contact HMRC as soon as you can. Not when you've worked out what to say, not when the money might turn up. As soon as you know there's a problem.
Here's why the timing is worth actual money. If a payment plan is agreed and you keep to it, penalties are paused from the date you contacted HMRC, not from the date the plan was finally set up. Every day you delay the call is a day the percentages carry on climbing.
You may still be charged a penalty if a payment plan can't be agreed, or if you don't stick to the one you've agreed.
Late payment interest continues either way. A payment plan protects you from penalties, not from interest.
First, a distinction that saves a lot of wasted effort. The letter telling you the new penalties apply isn't itself a penalty, so there's nothing in it to appeal.
HMRC will write to you separately if you actually get:
- A late payment penalty
- A late submission penalty point
- A £200 late submission penalty
Those can be appealed if you disagree, and that letter will explain how. The process works the same way as it does for Self Assessment.
If you don't think you should be in MTD at all, that's a different conversation, and one to have with HMRC's Self Assessment general enquiries rather than through a penalty appeal.
Short list. None of it is dramatic, and all of it is quicker than it sounds.
- Check the threshold on your letter. Two points or four. That tells you which set of rules you're reading about everywhere else
- See whether any quarterly updates are outstanding. Your HMRC account shows which are due. Updates are cumulative, so a single submission brings you fully up to date however many you've missed
- Put 31 January in the diary properly. It's both the filing deadline and the payment deadline, and it's the one that costs money on both counts
- If paying on time is going to be difficult, contact HMRC before the due date. Penalties pause from the date you make contact
- Keep the letter. It's your record of which penalty rules apply to you and from which tax year
And if the letter has left you assuming you need to change how you keep your records, you don't. A spreadsheet is a digital record, and bridging software connects it to HMRC.
Every penalty in that letter comes down to a deadline. suiteSheets exists to make the deadlines uneventful.
It's HMRC-recognised bridging software for people whose records already live in a spreadsheet. There's no new system to learn and no monthly subscription, so keeping up with quarterly updates costs you a few minutes rather than a change of habit.
- Download our free template, or add our Overview sheet to the spreadsheet you already use
- Keep your income and expenses in it as you go
- Upload and submit before each quarterly deadline. If you've fallen behind, one cumulative submission catches you up
Quarterly submissions are £20 per tax year for your first income source, covering every update for that year, with unlimited resubmissions included. Your end of year tax return is priced separately at £15, and it's the submission that confirms your final position ahead of the deadline that actually earns points.
No. It's HMRC confirming which penalty rules now apply to you because you're using Making Tax Digital for Income Tax. No money is being demanded and there's nothing to reply to. HMRC writes to you separately if you ever actually get a penalty or a penalty point.
Because the letter has nothing to do with what you've submitted. If you volunteered for MTD, HMRC sends it once you've signed up and your records have been moved onto its new IT platform. It follows an administrative step at HMRC's end, not anything at yours.
Look at the penalty point threshold. A threshold of 2 points means you have the volunteer letter. A threshold of 4 points means you have the letter for people required to use MTD from April 2026. The volunteer version also mentions what would happen if you are required to use MTD in future.
Not right now. Volunteers get no penalty points for late quarterly updates while they're volunteering, and people required to join from April 2026 get none for the 2026/27 tax year. You still need to submit your quarterly updates, because your tax return can't be submitted until they're done.
You get one penalty point. There's no immediate £200 charge unless that point takes you to your threshold, which is 2 points for volunteers and 4 points for people required to use MTD. Once you're at the threshold, every further missed submission deadline costs £200.
For the 2026/27 tax year, nothing if you pay within 15 days of the due date, 3% of the tax owed at day 15 if you pay between 16 and 30 days late, and 3% at day 15 plus 3% at day 30 if you go beyond that, with 10% a year charged daily from day 31. Those 3% figures become 4% from 2027/28. Late payment interest is charged on top.
No. They apply to a balancing payment on your tax bill and to amounts due following an amendment or assessment, but not to payments on account. Late payment interest still runs on a payment on account that's paid late.
No. If you volunteered, you agreed to the new penalties as part of signing up, and that decision can't be reversed, even if you stop volunteering. An agent can agree on your behalf, so it's possible to be bound by this without remembering it. The old penalties do still apply to your earlier tax years.
Below your threshold, each point is removed automatically 24 months after the deadline you missed, and you can check the date in your HMRC online services account. At the threshold, automatic removal stops. Volunteers then need to submit their next 2 tax returns on time, and anyone required to use MTD needs 12 months of on-time submissions. Both also need any outstanding submissions from the previous 24 months brought up to date.
Your threshold rises from 2 points to 4, and your existing points are adjusted upwards to match, so 1 point becomes 3. It looks worse but it isn't. You stay exactly the same distance from the threshold as you were before.
This guide is provided for general information only. suiteSheets is software for spreadsheet users. We do not provide tax advice, accounting advice or legal advice. If you are unsure how these penalties apply to your circumstances, contact HMRC or a qualified adviser.
There are two separate HMRC pages on MTD penalties, one for volunteers and one for people required to use MTD. Make sure you're reading the one that matches your letter. It's worth checking GOV.UK for the latest position.
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