Are you aware of the penalties for non-compliance with MTD?

By this point, you are likely well aware that Making Tax Digital (MTD) is coming soon, with the next big change impacting Income Tax (IT) from April 2026.

While you might be familiar with the changes to filing requirements and the need for new software, you might be less aware of the points system that is coming to support the increased number of deadlines.

If managed properly, the new system can allow those who are struggling with the changes to keep their heads above water, but the system needs to be well understood to avoid costly penalties down the road.

What are the penalties for non-compliance with MTD?

The new penalty system is built on points, and it applies to anyone who fails to submit their returns on time.

It operates in a similar way to a driving licence, where you accumulate points and, when enough points are gathered, you suffer the penalty.

Unlike the old system, where one missed deadline could trigger a fine and a long wait before it reset, the new points-based approach is intended to be fairer for occasional mistakes while still taking repeat offenders seriously.

Each missed deadline awards one point, and a £200 penalty is applied once four points are gathered.

This means you can miss three of your four deadlines before HM Revenue and Customs (HMRC) will take action, but we would not recommend putting this to the test.

Points don’t last forever, but they will stay on your record for up to two years, so they can quickly add up if you’re not organised.

That means missing a deadline here and there might not hurt you immediately, but it could put you at risk of crossing the threshold faster than you expect.

It’s not just filing deadlines that matter.

MTD also requires that you keep digital records and use compatible software to submit your returns.

If you fail to follow these rules, HMRC can impose separate penalties, and these can be costly.

Many businesses think they are compliant because they file on time, but if their record-keeping processes don’t meet the MTD criteria, they could still be in breach.

How do I avoid penalties?

Our main advice around MTD is still to prepare as early as possible and seek professional advice when you need it.

More deadlines mean more chances to make mistakes, so you need to be prepared.

You still have time to get your systems, software, and processes aligned with MTD requirements.

Leaving it to the last minute or assuming you can work around the rules will almost certainly cost you more in the long run.

We can review your current systems, guide you through compatible software options, and make sure you’re submitting and storing data in the correct way.

This will keep you on the right side of HMRC so that you can keep managing your finances without the stress of MTD non-compliance hanging overhead.

The penalties for non-compliance are avoidable, but only if you act now.

Don’t wait for the first £200 fine to arrive before making changes.

With the right support and processes in place, MTD can be a smooth and beneficial part of your business routine rather than a source of stress and unexpected costs.

Take the stress out of MTD preparations. Speak to our team today!

Katy Tovey