MTD Penalties: How Much Can HMRC Fine You

Understanding MTD penalties helps you plan properly and avoid unnecessary costs. Here is a complete breakdown of what HMRC can charge you under the new system.

Late Submission Penalties

HMRC uses a points-based system for late submissions:

• Each late quarterly update or final declaration earns 1 penalty point
• The threshold for quarterly obligations is 4 points
• Once you hit 4 points, every subsequent late submission triggers a £200 penalty
• Points are tracked separately for each tax obligation (so VAT and Income Tax have separate point tallies)

How Points Reset

You can reset your points to zero by filing all submissions on time for a continuous 24-month period (for quarterly obligations). This means submitting 8 consecutive quarterly updates on time.

Practical Example

If you miss Q1 and Q3 in your first year, you have 2 points. Miss Q2 in your second year — 3 points. Miss Q4 — you hit 4 points. From this moment, every further late submission costs £200.

Late Payment Penalties

Late payment penalties are separate from late submission penalties:

| Time overdue | Penalty | |-------------|---------| | Days 1–15 | No penalty, but interest charged from day 1 | | Day 16 | 2% of tax outstanding at day 15 | | Day 31 | Additional 2% of tax outstanding at day 30 | | 6 months+ | Further 4% per annum calculated daily |

Interest is charged at the Bank of England base rate plus 2.5%, accruing from the original due date.

Example

If you owe £10,000 and pay 45 days late:

• Interest: approximately £33 (assuming 7% total rate, 45 days)
• Day 16 penalty: £200 (2% of £10,000)
• Day 31 penalty: £200 (2% of £10,000)
• Total additional cost: approximately £433

Failure to Keep Digital Records

HMRC can penalise you for not maintaining proper digital records as required by MTD. Penalties are at HMRC's discretion and depend on the severity and whether the failure was deliberate.

In practice, HMRC has indicated it will take a measured approach, focusing on education rather than punishment in the early stages. However, persistent refusal to keep digital records could result in penalties.

How to Avoid All MTD Penalties

The simplest way to avoid penalties is to stay on top of your obligations:

• Use software with automatic reminders and, ideally, automatic submission
• Keep records up to date weekly so quarterly submissions are quick
• Pay estimated tax throughout the year so you are not scrambling in January
• Set up bank feeds to ensure nothing is missed

Accounted sends you reminders before every deadline and can auto-submit your quarterly updates once you have reviewed them.

Appealing Penalties

If you have a reasonable excuse (serious illness, bereavement, HMRC system outages), you can appeal a penalty within 30 days of receiving the notice. HMRC will review your evidence and may cancel the penalty.

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