What are the penalties if I make a mistake with Making Tax Digital?

If you're a sole trader or landlord getting to grips with the new Making Tax Digital for Income Tax (MTD) rules, you might be wondering what happens if you slip up. The good news? The system is intended to be fair, not scary.

From April 2026, if you earn over £50,000 a year from self-employment or property, you need to keep digital records and send quarterly updates to HMRC. It's natural to worry about getting it wrong, but HMRC isn't trying to catch you out. That’s why there’s a new system for Making Tax Digital penalties.

Are there penalties if you get Making Tax Digital wrong?

Yes, there are MTD penalties, but they work differently from the old system. Making Tax Digital uses a points-based penalty system for inaccurate annual returns, late submissions, late payments, using the wrong software, and deliberately withholding information. It’s designed to be more forgiving of genuine slip-ups, so the more points you rack up, the higher the chance of a penalty.

"The new points-based [penalty] system is designed to be fairer and more proportionate,” says Jennifer Staves, HMRC's Deputy Director of Strategic Design for Making Tax Digital. “An occasional mistake leads to a point rather than an immediate fine. It focuses on persistent non-compliance rather than genuine one-off errors," she explains. 

The penalty system works a little differently depending on whether you’ve decided to join MTD early, or whether MTD is mandatory for you.

Late submission penalties for MTD

If your income is above the threshold and you’re required to join MTD, you get a point each for:

• Late quarterly submissions (but these won’t be applied for the first tax year of MTD from April 2026 to April 2027)

• Late yearly tax returns

Once you reach 4 points, HMRC will issue a £200 fine. After that you’ll get a penalty for each subsequent late submission.

If you’re required to join MTD, the points reset to zero once:

• You’ve submitted on time for 12 months

• HMRC has received all your returns due for the last 24 months

So if you manage to get back on track, you’ve got the opportunity for a fresh start, and those occasional errors won't haunt you forever.

Heads up: if you’ve chosen to file tax digitally before you need to, there are some different rules on penalty points – here’s what you need to know.

Late payment penalties for Making Tax Digital 

HMRC encourages you to pay your tax bill on time in a couple of ways. Firstly, they’ll charge you late payment interest if you don’t pay on time. This interest starts from day one up until the day you settle the tax. The longer you wait to pay the amount due, the more interest you pay. 

Secondly, if you still haven’t paid after 16 days, HMRC will start issuing late payment penalties. These are in addition to the interest, and will keep adding up until you’ve cleared your bill.

If you’re struggling to pay the tax due, contact HMRC or speak to an accountant.

Using the right MTD software

Using the right software matters. If you don’t use software that’s compatible with Making Tax Digital you could get a fine of up to £400 every time you file. If you’re not sure what counts as compatible software, it’s worth checking with HMRC before you file. It could save you a lot of hassle.

For more reassurance, check out our guide on myths about MTD to separate fact from fiction.

Inaccurate annual tax returns

HMRC charges penalties for inaccurate annual returns. For quarterly updates, there are no penalties for inaccuracy (but there are penalties for deliberately withholding information as well as failing to keep adequate digital records). 

The amount you’d be charged can vary based on how much additional tax you owe, and whether your inaccuracy was accidental or deliberate. 

Steps to avoid Making Tax Digital penalties

Here are some practical steps to keep you on track:

1. Set up digital record-keeping from day one. Use HMRC-recognised software, like Monzo's free Making Tax Digital tool, to track income and expenses automatically.

2. Create calendar reminders for quarterly and annual deadlines, or check your Monzo app where there’s a built-in timeline to remind you of upcoming deadlines. Don't wait until the last minute!

3. Keep your records up-to-date. Updating expenses as you go, or setting up a weekly check-in is easier than scrambling quarterly.

4. Double-check your submissions before sending. It can be worthwhile taking an extra minute to review your figures.

5. Ask for help early if you're struggling. Contact HMRC or a professional adviser (e.g. an accountant or tax adviser) before you miss a deadline.

If you're worried about the transition, our tips to make the switch to MTD simple can help you get set up smoothly.

What are the deadlines you should know?

Mark these dates in your calendar for the 2026 to 2027 tax year so they don’t pass you by:

• 7 August 2026: first quarterly update deadline

• 7 November 2026: second quarterly update deadline

• 7 February 2027: third quarterly update deadline

• 7 May 2027: fourth quarterly update deadline

• 31 January 2028: final declaration and payment deadline

If you miss an update, you'll get a penalty point (not for the first year of MTD, though). Miss enough, and you could face a fine from HMRC. For a full breakdown of all the dates you should be aware of, read our Making Tax Digital deadlines guide.

When will Making Tax Digital for Income Tax affect me?

Not all sole traders and landlords need to switch to MTD immediately. The rollout happens in stages based on your income:

• April 2026: applies if you earn over £50,000 a year 

• April 2027: threshold drops to £30,000 

• April 2028: threshold drops again to £20,000 

Your income gets assessed based on the tax year two years before, so whether you’re in from April 2026 depends on your income for the tax year ended April 2025. Income gets adjusted where you only operate part way through a year .

If your earnings fall under the Making Tax Digital threshold, you've got time to prepare. But it's worth getting familiar with the system early. There's nothing stopping you from filing your taxes digitally at any point before you're mandated to, and understanding how it works can help you to feel confident and avoid any last-minute stress.

With Monzo Business, you get a free account that connects right to a built-in Making Tax Digital tool, making it simple to file straight to HMRC.

The bottom line? Making tax digital penalties exist to encourage compliance, not to punish honest mistakes. By staying organised and using the right tools, you can navigate the new system without breaking a sweat. And if you do slip up once or twice? The points-based system gives you breathing room to get back on track.

Free MTD software is built into Monzo’s business accounts as standard. It’s recognised by HMRC too, so you can file tax straight from Monzo to HMRC. Apply for a free business bank account now to access the tool.

Making Tax Digital tool available for sole traders and landlords only. Only sole traders, limited company directors and landlords in the UK can apply for an account. Ts&Cs apply.