What Happens If You Miss the MTD Deadline

Making Tax Digital is no longer a future concern. MTD for VAT has been mandatory for all VAT-registered businesses since April 2022, and MTD for Income Tax Self Assessment (MTD for ITSA) began rolling out from April 2026 for sole traders and landlords with qualifying income above £50,000. If you fall within these thresholds, you are now required to keep digital records using compatible software and submit quarterly updates to HMRC.

The question many business owners are now asking is not "do I need to comply?" but rather "what happens if I miss a deadline?" The answer is more structured — and potentially more costly — than many people realise.

In this guide, we will walk through the penalty regimes for both late submissions and late payments under MTD, explain the interest charges that apply, outline the reasonable excuses HMRC accepts, and show you how Accounted and Penny can help you stay on the right side of every deadline.

Late Submission Penalties: The Points-Based System

Since January 2023, HMRC has operated a points-based penalty system for late VAT returns. This same system applies to MTD for Income Tax quarterly updates. It works rather like penalty points on a driving licence — each late submission earns you a point, and once you reach the threshold, you receive a financial penalty.

How Points Accumulate

Each time you submit a return or quarterly update after the deadline, you receive one penalty point. The threshold at which a financial penalty is triggered depends on how frequently you are required to submit:

| Submission frequency | Points threshold | |---|---| | Annual | 2 points | | Quarterly | 4 points | | Monthly | 5 points |

For most sole traders under MTD for Income Tax, submissions are quarterly, so the threshold is 4 points. This means your first three late submissions result in warning points but no financial penalty. The fourth late submission — and every subsequent late submission — triggers a £200 penalty.

How Points Expire

Points do not stay on your record forever, but the conditions for removal are stricter than many people expect. To have your points reset to zero, you must:

1. Meet the points threshold period of compliance. You need to submit on time for a continuous period, which depends on your submission frequency:

   • Quarterly submissions: 12 months of on-time submissions
   • Monthly submissions: 6 months of on-time submissions
   • Annual submissions: 24 months of on-time submissions

2. Have submitted all outstanding returns. You cannot reset your points if you have any overdue returns, even if they relate to earlier periods.

This means that if you are a quarterly filer and you reach the 4-point threshold, you need a full year of perfect on-time submissions — plus no outstanding returns — before your slate is wiped clean. During that year, every late submission costs you £200.

The full details of the penalties for late submission are published on GOV.UK.

A Practical Example

Consider a sole trader submitting quarterly updates under MTD for Income Tax:

• Q1 update (due 7 August): Submitted 10 August. One point.
• Q2 update (due 7 November): Submitted on time. No point.
• Q3 update (due 7 February): Submitted 15 February. Second point.
• Q4 update (due 7 May): Submitted 20 May. Third point.
• Q1 of next year (due 7 August): Submitted 9 August. Fourth point. £200 penalty.
• Q2 of next year (due 7 November): Submitted 12 November. Still at 4+ points. Another £200 penalty.

You can see how quickly this escalates. Four moderately late submissions — some by just a few days — and you are paying £200 per quarter until you manage a full year of compliance.

Late Payment Penalties

Missing a payment deadline is treated separately from missing a submission deadline. You can submit your return on time but still face penalties if you do not pay the tax owed by the due date.

The late payment penalty structure has two tiers:

First 15 Days

If your payment is up to 15 days late, no penalty is charged. This is effectively a grace period, though interest will still accrue from the original due date (more on that below).

16 to 30 Days Late

If your payment is between 16 and 30 days late, you are charged a penalty of 2% of the tax outstanding at day 15. This is a one-off charge, not a daily rate.

For example, if you owe £3,000 and have not paid anything by day 15, the penalty is 2% of £3,000 = £60.

31 or More Days Late

If your payment is 31 or more days late, the penalty increases. You are charged:

• 2% of the tax outstanding at day 15, plus
• 2% of the tax outstanding at day 30, plus
• A daily penalty of 4% per annum on the outstanding balance from day 31 until the date of payment.

Using the same £3,000 example, and assuming you still owe the full amount at day 30:

• 2% of £3,000 at day 15 = £60
• 2% of £3,000 at day 30 = £60
• Daily penalty from day 31 at 4% per annum on £3,000 = approximately £0.33 per day

If you finally pay on day 60 (30 days of daily penalty), the total late payment penalty would be approximately £60 + £60 + £9.86 = £129.86, plus interest.

Interest Charges

On top of penalties, HMRC charges interest on any tax paid late. The interest rate is the Bank of England base rate plus 2.5%. As of early 2026, this means a late payment interest rate of around 7% per annum, though the exact rate fluctuates with base rate changes.

Interest is charged from the original due date until the date of payment, regardless of whether a penalty applies. Even if you pay one day late and avoid penalties (because you are within the 15-day grace period), you will still be charged interest for that one day.

This is not a trivial amount. On a £5,000 tax bill paid 90 days late, the interest alone would be approximately £86, on top of any late payment penalties.

Reasonable Excuses That HMRC Accepts

HMRC recognises that sometimes things go wrong through no fault of your own. If you have a "reasonable excuse" for a late submission or late payment, you can appeal the penalty.

Reasonable excuses include:

• Serious illness or bereavement affecting you or a close family member.
• Unexpected hospital stays that prevented you from dealing with tax affairs.
• Fire, flood, or natural disaster that destroyed your records or prevented access to your premises.
• HMRC service issues — if HMRC's online systems were down and you could not submit.
• Postal delays (for paper submissions, where applicable).
• Death of a partner or close relative shortly before the deadline.

What is not a reasonable excuse:

• You forgot.
• You did not know the deadline.
• You relied on someone else (e.g., an accountant) and they let you down — unless you took reasonable care to ensure they were doing their job.
• You found the process confusing.
• Your computer broke — unless it was a sudden, unforeseeable failure very close to the deadline.
• You did not have the money to pay. (This is not a reasonable excuse for a late payment penalty, though HMRC may agree a Time to Pay arrangement — see below.)

The excuse must be genuine, and you must remedy the failure as soon as the excuse no longer applies. If you were ill for two weeks and that caused you to miss the deadline, you need to submit as soon as you recover. You cannot rely on an illness in January to excuse a submission that remains outstanding in March.

How to Appeal a Penalty

If you believe you have a reasonable excuse, you can appeal a penalty in one of two ways:

1. Online through your HMRC account. Log into your Government Gateway account and follow the link to appeal a penalty. You will need to explain your circumstances and provide any supporting evidence (e.g., a doctor's note, a fire report).

2. In writing. Write to HMRC explaining your circumstances, quoting the penalty reference number. Include any supporting evidence.

HMRC will review your appeal and either accept it (cancelling the penalty) or reject it. If they reject it, you can request a statutory review by a different HMRC officer, and if that is also unsuccessful, you can appeal to the First-tier Tribunal (Tax Chamber).

The key to a successful appeal is evidence. Do not simply say "I was ill." Provide a letter from your doctor. Do not simply say "the system was down." Provide a screenshot or reference to HMRC's published service outage.

Time to Pay Arrangements

If you cannot afford to pay your tax bill by the deadline, the worst thing you can do is ignore it. HMRC offers Time to Pay arrangements for taxpayers who are genuinely unable to pay on time.

A Time to Pay arrangement allows you to spread your tax bill over a period of up to 12 months (sometimes longer in exceptional circumstances). You continue to pay interest on the outstanding balance, but the late payment penalties may be reduced or waived if you set up the arrangement promptly.

To set up a Time to Pay arrangement:

• For bills under £30,000: You can set this up online through your HMRC account, provided you are within 60 days of the payment deadline and you do not already have a Time to Pay arrangement in place.
• For larger bills or more complex situations: Call HMRC's Payment Support Service on 0300 200 3835. Be prepared to discuss your income, expenses, and assets, as HMRC will want to understand your financial situation before agreeing a payment plan.

The critical point is to act early. If you contact HMRC before the deadline and explain that you will need extra time, they are far more likely to be accommodating than if you simply fail to pay and wait for the penalties to arrive.

How Penny Sends Deadline Reminders

One of the simplest ways to avoid late submission penalties is to never miss a deadline in the first place. Penny, the AI bookkeeper in Accounted, is designed to help with exactly this.

Here is how Penny keeps you on track:

Automatic deadline tracking. Penny knows your MTD submission schedule — whether quarterly for Income Tax or monthly/quarterly for VAT — and tracks the upcoming deadlines in your Accounted dashboard.

Advance reminders. Penny sends you reminders well ahead of each deadline, giving you time to review your records, chase any missing receipts, and prepare your submission. You will typically receive a reminder two weeks before the deadline and another one week before.

Submission readiness check. Before you submit, Penny reviews your records for common issues — uncategorised transactions, missing receipts, unusual amounts — and flags anything that needs your attention. This reduces the risk of submitting incorrect figures that you later need to amend.

Payment reminders. Penny also tracks payment deadlines and reminds you when tax payments are due. If you have set up a direct debit for your tax payments, Penny confirms that the payment is scheduled and alerts you if anything looks wrong.

To see the full range of compliance features, including deadline tracking and automated reminders, visit the Accounted features page.

Setting Up Direct Debits for Tax Payments

One practical step that eliminates the risk of late payment penalties is setting up a direct debit for your tax payments. HMRC accepts direct debit payments for:

• Self Assessment balancing payments and payments on account
• VAT returns
• Corporation Tax

You can set up a direct debit through your Government Gateway account. The payment is collected automatically on or shortly after the due date, which means you never forget to make a payment.

There are a couple of things to bear in mind:

• You need sufficient funds in your account. A failed direct debit does not count as a payment, and you will still face late payment penalties if the money is not there.
• Timing. Direct debits can take a few days to set up, so do not leave it until the day before the deadline. Set it up well in advance.
• Payments on account. If you make payments on account for Self Assessment (see our guide on how to file your Self Assessment for 2026 for more details), a direct debit can cover both the January and July payments automatically.

Penny can help you estimate your upcoming tax liability so you know roughly how much will be debited and can ensure the funds are available. Accounted's real-time tax estimates mean you are never caught off guard by the amount.

Practical Steps to Stay Compliant

Let us summarise the practical steps you can take to avoid penalties under MTD:

1. Use MTD-compatible software. This is the baseline requirement. Accounted is fully MTD-compatible for both VAT and Income Tax.

2. Keep your records up to date. Do not let transactions pile up. With Accounted's automatic bank sync and Penny's AI categorisation, this happens largely on autopilot.

3. Set calendar reminders. Even with Penny's automated reminders, putting the key dates in your personal calendar provides an extra safety net.

4. Submit early. There is no benefit to waiting until the last day. Submit your quarterly update as soon as your records for the period are complete. If something goes wrong on deadline day — a system outage, a personal emergency — you will be grateful you did not leave it to the last minute.

5. Pay early or set up a direct debit. Remove the risk of forgetting a payment. If cash flow is tight, contact HMRC proactively to discuss a Time to Pay arrangement.

6. Keep records of submission and payment dates. Your Accounted dashboard logs when each submission was made and confirmed by HMRC. This is invaluable if there is ever a dispute about whether you submitted on time.

7. Act immediately if you miss a deadline. If you do miss a submission or payment deadline, deal with it as quickly as possible. Every day of delay increases the potential penalties and interest. Do not bury your head in the sand.

The Cost of Getting It Wrong

To put the penalties in perspective, consider a sole trader who misses four quarterly submission deadlines and pays their tax 45 days late on two occasions.

• Late submission penalties: 4 points, reaching the threshold, plus one further late submission at £200 = £200 (minimum, rising with each further late submission)
• Late payment penalties on two occasions (assuming £4,000 owed each time, paid at day 45): approximately £210 in penalties per occasion = £420
• Interest charges: approximately £140 across both late payments

Total cost: around £760 — and that is a conservative scenario. A pattern of persistent non-compliance can cost significantly more, and in extreme cases, HMRC can charge penalties of up to 100% of the tax due for deliberate non-compliance.

Compare that with the cost of using Accounted — £14 per month, or £168 per year — with automated reminders, MTD-compatible submissions, and real-time tax estimates. The maths speaks for itself.

Start your free trial of Accounted today and let Penny ensure you never miss another deadline.

Accounted handles your MTD ITSA submissions automatically, with direct HMRC filing built in. See how MTD works in Accounted →