HMRC replaced automatic fixed fines for late submissions with a points-based system — similar in structure to a driving licence, where individual points accumulate and a financial penalty only triggers once you cross a threshold.
How Points Actually Accumulate
Each time you miss a quarterly update or your final declaration deadline, you get one penalty point. It doesn't matter whether the submission is one day late or three months late — the point is the same either way, and you can only receive one point per missed deadline even if you have more than one business or property source reporting late for the same period.
The Threshold That Triggers a Penalty
For MTD Income Tax, since you submit quarterly, your penalty threshold is 4 points. Once you reach four points, HMRC issues a £200 fixed penalty, and every further late submission after that also triggers another £200 penalty, for as long as you remain at or above the threshold.
How Points Come Off Your Record
If you're below the four-point threshold, each individual point is automatically removed 24 months after the missed deadline it relates to. Once you actually reach the four-point threshold, automatic removal stops entirely — to clear all your points at that stage, you need to meet two conditions: submit everything on time for a full 12 months, and also submit any outstanding updates or returns covering the previous 24 months. Only once both conditions are satisfied does HMRC wipe the slate clean.
The Separate Late Payment Penalty System
Late submission penalties are completely separate from late payment penalties, which work on a different, percentage-based structure: penalties apply from day 16 of a late payment, again at day 31, plus daily interest charges continuing until the balance is paid. Being on time with your quarterly updates does not protect you from late payment penalties if you owe tax and don't pay it by the deadline — the two systems run independently.
The First-Year Soft Landing
HMRC announced no penalty points will be charged for late quarterly updates during the 2026/27 tax year specifically — a genuine grace period for the first full year of the new system. This doesn't remove the legal requirement to submit on time, and it doesn't apply to late payment penalties, but it does mean an occasional missed quarterly deadline in this first year won't yet cost you points.
Practical Habits That Avoid Ever Reaching the Threshold
Set calendar reminders for all four fixed deadlines well in advance, rather than relying on memory. Reconcile your records monthly rather than scrambling in the final days before each quarterly deadline. If you know a deadline will genuinely be missed, check HMRC's current guidance on reasonable excuse provisions, since these can sometimes prevent a point being applied for a specific, justified reason.
Frequently Asked Questions
Do points for MTD Income Tax affect my MTD for VAT points, or vice versa?
No — separate points tallies are kept for each tax, so a late VAT return and a late Income Tax quarterly update accumulate on entirely separate records.
Can a point be appealed?
Yes — if you receive a penalty point or a £200 penalty you disagree with, HMRC's notification letter explains how to appeal.
Where to Go From Here
The Making Tax Digital Survival Blueprint includes a full compliance calendar built to keep you clear of every deadline, plus guidance on reasonable excuse provisions if something genuinely goes wrong.
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This article is for educational and informational purposes only and does not constitute accounting or tax advice. Penalty rules are subject to change — always verify current requirements directly with HMRC.