MTD for ITSA Penalties Explained: Points, Fines, and What Late Submission Actually Costs

Making Tax Digital for Income Tax Self Assessment went live on 6 April 2026 for sole traders and landlords earning over £50,000. With it came an entirely new penalty regime that replaces the old fixed-penalty model most people were used to.

The new system is built on two separate tracks: a points-based system for late submissions and a percentage-based system for late payments. They operate independently. You can be penalised for one, the other, or both at the same time.

This guide explains how both work, including the special rules for the 2026 to 2027 tax year. If you are an accountant managing dozens of clients through MTD, or a sole trader handling your own submissions, the mechanics are the same.

The points-based penalty system for late submissions

HMRC moved away from immediate fines for late filing. For tax years after 2026 to 2027, each late quarterly update adds one point to your record. Once you hit the threshold, you receive a £200 fixed penalty — and every subsequent late submission also triggers £200 until your record is clean. Late tax returns can earn points from 2026 to 2027.

How points accumulate

The penalty threshold depends on how often you are required to submit. For MTD for ITSA, the threshold is 4 points. The sequence below applies after the 2026 to 2027 quarterly-update exemption:

• 1st late submission: 1 point. No fine.
• 2nd late submission: 2 points. No fine.
• 3rd late submission: 3 points. No fine.
• 4th late submission: 4 points. Threshold reached. £200 penalty.
• 5th and every subsequent late submission: £200 penalty each time.

Those four late submissions do not need to be consecutive. If you miss Q1 in your first year, submit Q2 and Q3 on time, then miss Q4, you still have 2 points. The points accumulate over time, not within a single tax year.

A worked example

Take Sarah, a freelance marketing consultant earning £65,000. She is in the first wave of MTD for ITSA from April 2026. Her quarterly submission deadlines are:

• Q1 (6 Apr – 5 Jul): due 7 August 2026
• Q2 (6 Apr – 5 Oct): due 7 November 2026
• Q3 (6 Apr – 5 Jan): due 7 February 2027
• Q4 (6 Apr – 5 Apr): due 7 May 2027

Sarah misses Q1 because she is still figuring out her software. HMRC does not apply a penalty point because quarterly-update points are suspended for the entire 2026 to 2027 tax year. She still needs to submit the missing update before she can file her tax return.

From the 2027 to 2028 tax year, late quarterly updates can start adding points. If Sarah later reaches 4 points, she receives a £200 penalty. Each further missed deadline triggers another £200 until her points are removed.

The points system is designed to give occasional mistakes a pass while catching persistent non-compliance. But four late submissions out of eight (two years of quarterly filings) is not hard to reach if your process is not solid.

The 2026/27 soft landing

HMRC will not apply penalty points for late quarterly updates during the 2026 to 2027 tax year. This is stronger than points being recorded without fines: no quarterly-update points are added for that year.

You still need to keep digital records and send every quarterly update before you can submit your tax return. Penalty points still apply if the tax return itself is late.

How to reset your penalty points

If you are below the 4-point threshold, HMRC normally removes each point 24 months after the missed deadline. If you reach the threshold, individual points do not expire on that timetable.

At the threshold, all points are removed after you meet two conditions: submit on time for 12 months, and file any outstanding quarterly updates and tax returns from the previous 24 months.

Late payment penalties: a different system entirely

Late submission penalties are about whether you filed on time. Late payment penalties are about whether you paid on time. They are completely separate.

The late payment regime does not use points. It goes straight to money. There are three tiers:

• Up to 30 days overdue in your first year: no late payment penalty if you pay in full or agree a payment plan with HMRC.
• 31 days or more overdue for 2026 to 2027 tax: 3% of the amount owed at day 15, plus 3% of the amount still owed at day 30.
• From day 31: a daily penalty at an annual rate of 10% applies to the outstanding balance, in addition to late payment interest.

A worked example

David is a landlord with three buy-to-let properties. He owes a balancing payment of £3,000 after submitting his tax return, due 31 January 2028.

David does not pay until 15 March 2028 — 43 days late. Here is what he owes in penalties:

• Day 15 component: 3% of £3,000 = £90
• Day 30 component: 3% of £3,000 = £90
• Days 31–43 (13 days): 10% per annum on £3,000 is roughly £10.68

Total late payment penalty: approximately £190.68 on top of the £3,000 he already owed. Late payment interest is charged separately, so the actual total will be higher.

How the two penalty systems interact

The submission and payment penalties run in parallel. You can be hit by both at once. Consider this scenario:

For the 2026 to 2027 tax year, a late quarterly update does not create a point, but a late tax return can. Paying late is assessed separately and can create percentage-based penalties and interest even where no quarterly-update point applies.

What the old system looked like

Under the previous Self Assessment regime, the penalties were simpler but arguably less fair. Miss your filing deadline and you received an immediate £100 fine, regardless of whether it was your first offence or your fifth. Three months late added £10 per day for up to 90 days. Six months added the greater of £300 or 5% of the tax owed. Twelve months added another £300 or 5%.

The points system is more forgiving of an occasional late submission, but persistent lateness becomes expensive once the threshold is reached.

Practical steps to avoid penalties

The easiest way to avoid the new penalty regime is to never be late. That sounds obvious, but MTD for ITSA creates four deadlines per year per client instead of one. For a practice with 200 affected clients, that is 800 quarterly deadlines to track annually. The margin for error is narrow.

• Automate the bookkeeping. The biggest bottleneck in quarterly submissions is not the filing itself — it is getting the books up to date in time to file. If you are manually processing invoices and bank statements, four times per year becomes unworkable. Tools like Briefcase Ledger use AI agents to process transactions continuously, so your records are always ready when the deadline arrives. No quarter-end rush, no catch-up. Read more about bookkeeping automation options.
• Set deadline reminders early. Do not aim for the deadline day. Aim for two weeks before. If Q2 is due 7 November, use an internal target in late October. This gives you a buffer for client delays and software issues.
• Triage your client list now. Identify which clients are in the £50,000+ bracket for April 2026, which are £30,000+ for April 2027, and which are borderline. Knowing the phased rollout lets you stagger your preparation rather than trying to onboard everyone at once.
• Send every update. The 2026 to 2027 exemption removes quarterly-update points, but it does not remove the filing requirement. Outstanding updates must be sent before the tax return.

Frequently asked questions

Getting started

The first MTD for ITSA quarterly deadline was 7 August 2026 and the next is 7 November 2026. If you have not set up your digital record-keeping and chosen your MTD software, start now. The first-year quarterly-update exemption gives you room to establish the process, but the updates are still required.

For a comparison of the software options available for MTD quarterly submissions, read our guide to MTD software for sole traders and landlords. For more on how Briefcase handles the bookkeeping behind MTD, including automated invoice processing and bank reconciliation, start a free trial or read about how AI agents are transforming accounting workflows.