How to Manage Your MTD Penalty Points (and Reset Them)
Last updated: February 2026
Penalty points under Making Tax Digital are not abstract. They accumulate, they trigger fines, and they stay on your record until you actively clear them. The good news is that the system is entirely predictable. If you understand how points build up, you can plan around them and keep your record clean. In this guide, I will explain exactly how the points system works, what the soft-landing period means for you, and the specific steps you need to take if you ever need to reset your points to zero.
Quick recap — how penalty points work
Under MTD for Income Tax, HMRC uses a points-based system for late quarterly submissions. Here is how it works:
- Every time you submit a quarterly update late, you receive 1 penalty point.
- Once you accumulate 4 penalty points, you receive a £200 fixed penalty.
- After the £200 penalty, every further late submission triggers an additional £200 penalty — you do not need to reach another threshold.
- Points are tracked per obligation. If you have both self-employment and property income, HMRC tracks them separately. You could have 2 points on your self-employment record and 1 on your property record.
This is a fundamentally different approach from the old Self Assessment late filing penalties, where a single missed deadline triggered escalating fines. The new system gives you room to make occasional mistakes before any financial consequence. For a full breakdown of how the points-based system operates, read our guide on how penalty points work.
The soft-landing period (2026/27) — your free pass
HMRC has confirmed a soft landing period for the first year of MTD for Income Tax. For Phase 1 taxpayers (those with qualifying income above £50,000), the 2026/27 tax year comes with a significant concession:
- No penalty points will be issued for the first 4 quarterly updates in 2026/27.
- This effectively gives you a full year to get your processes right without any risk of penalties for late submission.
- The soft landing applies only to late submission. Late payment penalties still apply as normal — if you owe tax and pay late, you will be charged interest and potentially penalties.
- The concession applies specifically to Phase 1 taxpayers in their first year of MTD compliance (2026/27).
This is a genuine opportunity. Use it to test your software, establish your quarterly rhythm, and work out any issues with your record-keeping. Do not treat it as a reason to ignore all MTD deadlines — you still need to submit, even if a late one will not cost you a point during this period.
Practical strategies to avoid accumulating points
Prevention is always better than cure. These are the strategies I recommend to every client.
Set up calendar reminders with specific deadline dates
For the 2026/27 tax year, your quarterly submission deadlines are:
| Quarter | Period covered | Submission deadline |
|---|---|---|
| Q1 | 6 April – 5 July 2026 | 7 August 2026 |
| Q2 | 6 July – 5 October 2026 | 7 November 2026 |
| Q3 | 6 October 2026 – 5 January 2027 | 7 February 2027 |
| Q4 | 6 January – 5 April 2027 | 7 May 2027 |
Your Final Declaration is due by 31 January 2028. Put all five dates in your calendar now, with a reminder one week before each deadline.
Submit early, not on deadline day
I cannot stress this enough: do not leave your submission to the final day. Software issues, internet outages, and HMRC system downtime on deadline day are not considered a reasonable excuse for a late submission. If thousands of people are trying to submit on the same evening and the system slows down, that is your problem, not HMRC’s. Aim to submit at least three days before the deadline.
Use software with auto-submission features
Several MTD-compatible software providers offer automated or semi-automated quarterly submissions. If your digital records are up to date, the software can compile and submit your update with minimal manual intervention. This reduces the risk of forgetting a deadline entirely. Check whether your chosen software supports this before the first quarter ends — see our guide on your first quarterly update for what to expect.
Appoint an agent to handle submissions
If you work with an accountant, they can submit quarterly updates on your behalf. This is particularly useful if you find the process stressful or if you regularly travel and might miss deadlines. Your agent will need formal agent authorisation from HMRC to act on your behalf. At Jack Ross, we handle this for clients and build the quarterly submissions into our workflow so nothing slips through.
What to do if you get a penalty point
If you receive a penalty point, HMRC will notify you. You will receive a letter or digital notification confirming the point has been added to your record. Here is what to do:
- Check whether you have a reasonable excuse. If there was a genuine reason for the late submission (see below), you may be able to have the point removed.
- Do not panic. One point does not trigger a penalty. You need 4 points before a £200 fine is issued.
- Keep filing on time from this point forward. Your immediate priority is preventing further points from accumulating. Every on-time submission from now on contributes to your 24-month reset clock.
- Review what went wrong. Was it a calendar issue? A software problem? A misunderstanding about the deadline? Identify the root cause and fix it so it does not happen again.
How to reset your penalty points to zero
HMRC provides a clear path to clearing your penalty points. If you achieve 24 consecutive months of on-time compliance, your points reset to zero. Here is how that works in practice:
- The 24-month clock starts from the date of your most recent late submission.
- During those 24 months, every quarterly update must be submitted by its deadline. A single late submission resets the clock.
- “On-time” means HMRC received your submission before the deadline. Submissions received on the deadline date count as on-time. Submissions received the day after do not.
- Once 24 months of clean compliance have passed, all your accumulated points are wiped. You return to zero.
Worked example: Helen is a Phase 1 sole trader. She submits her Q2 update late on 12 November 2027 (the deadline was 7 November 2027). She receives her second penalty point. From that date, Helen must submit every quarterly update on time for 24 consecutive months. If she manages this perfectly, her points reset to zero in November 2029. During those 24 months, if she misses even one deadline, the clock restarts from that new late submission.
Reasonable excuse — when HMRC removes points
In certain circumstances, HMRC will accept that you had a genuine reasonable excuse for a late submission and remove the penalty point. You must apply to HMRC with supporting evidence. The following are generally accepted as reasonable excuses:
- Serious illness or hospitalisation that prevented you from meeting the deadline
- Bereavement of a close family member close to the deadline
- Fire, flood, or natural disaster that destroyed records or prevented access to your systems
- HMRC system failures that made it impossible to submit on time (where HMRC acknowledges the issue)
- Unforeseen postal delays where you sent a paper submission well before the deadline (rare under MTD, which is digital)
The following are not considered reasonable excuses:
- You forgot the deadline
- You were too busy
- You did not understand the requirement
- Your software had a preventable issue (you should have submitted earlier)
- Your accountant made an error (you remain responsible for your tax obligations)
- You did not receive a reminder from HMRC
If you believe you have a reasonable excuse, submit your claim to HMRC as soon as possible with full documentation — medical certificates, insurance claim references, or screenshots of HMRC service outage notices.
Worked example — penalty point timeline
Let me walk through a realistic scenario for a Phase 1 taxpayer to show how points accumulate and how the reset works.
Mark is a self-employed consultant with qualifying income of £62,000. He enters MTD from 6 April 2026.
| Quarter | Deadline | Mark’s submission | Points | Notes |
|---|---|---|---|---|
| 2026/27 Q1 | 7 Aug 2026 | 10 Aug 2026 (late) | 0 | Soft-landing period — no point issued |
| 2026/27 Q2 | 7 Nov 2026 | 5 Nov 2026 (on time) | 0 | On time |
| 2026/27 Q3 | 7 Feb 2027 | 7 Feb 2027 (on time) | 0 | Deadline day — still counts as on time |
| 2026/27 Q4 | 7 May 2027 | 4 May 2027 (on time) | 0 | On time |
| 2027/28 Q1 | 7 Aug 2027 | 12 Aug 2027 (late) | 1 | Soft landing ended — first point issued |
| 2027/28 Q2 | 7 Nov 2027 | 9 Nov 2027 (late) | 2 | Second point — 24-month clock starts from 9 Nov 2027 |
| 2027/28 Q3 | 7 Feb 2028 | 3 Feb 2028 (on time) | 2 | On time — clock continues |
| 2027/28 Q4 | 7 May 2028 | 1 May 2028 (on time) | 2 | On time — clock continues |
If Mark continues submitting on time for every quarter through to November 2029, his 2 penalty points will reset to zero. He never reached the 4-point threshold, so he avoided the £200 penalty entirely. Had he accumulated 2 more late submissions before resetting, he would have triggered the fine.
The key lesson: even if you pick up a point or two early on, consistent on-time filing protects you from ever reaching the penalty threshold.
Frequently asked questions
Do penalty points carry over between tax years?
Yes. Penalty points do not reset at the end of a tax year. They persist on your record until you either achieve 24 consecutive months of on-time compliance (which resets them to zero) or successfully appeal on the basis of a reasonable excuse. A point earned in 2027/28 will still be on your record in 2028/29 unless you actively clear it through compliant behaviour.
What if I have both self-employment and property income — do I get double points?
HMRC tracks penalty points separately for each obligation. If you have both self-employment and property income, you could accumulate points on each record independently. For example, you might have 1 point on your self-employment record and 2 points on your property record. Each obligation has its own 4-point threshold before a £200 penalty is triggered. This means you have a maximum of 8 quarterly submissions per year (4 for each income source), and each set is judged on its own merits.
Can my accountant appeal penalty points on my behalf?
Yes, if your accountant has formal agent authorisation with HMRC, they can submit an appeal against a penalty point on your behalf. They can also manage your quarterly submissions to prevent points accumulating in the first place. However, the responsibility for meeting tax obligations ultimately rests with you as the taxpayer. If your agent submits late, the point goes on your record, not theirs.
Does the soft landing apply to Phase 2 and Phase 3 too?
HMRC has confirmed the soft-landing concession for the 2026/27 tax year, which covers Phase 1 taxpayers (qualifying income above £50,000). Whether a similar concession will apply to Phase 2 taxpayers entering MTD from 6 April 2027 or Phase 3 from 6 April 2028 has not yet been confirmed. It is reasonable to expect HMRC will offer a similar transition period for each phase, but until this is formally announced, you should plan as if full penalties will apply from day one of your mandation date.
