Making Tax Digital (MTD) Penalty Calculator 2026
Calculate MTD for VAT and ITSA late submission and late payment penalties. Points-based system from 2023. ITSA penalties from April 2026.
MTD Penalty Calculator
Frequently Asked Questions
What is MTD (Making Tax Digital)?
Making Tax Digital is HMRC's programme to require businesses and individuals to keep digital records and submit returns using compatible software. MTD for VAT is in force; MTD for ITSA begins April 2026 for self-employed with income over £50,000.
How does the points-based penalty system work?
Each late submission earns 1 penalty point. When you reach the threshold (4 points for quarterly filers), you receive a £200 fixed penalty. Each subsequent late submission is another £200. Points can expire after meeting certain conditions.
When does the threshold reset?
You can 'reset' your points to zero if you (a) file on time for 12 consecutive months (quarterly) and (b) have submitted all outstanding returns for the previous 24 months.
What are the MTD late payment penalties?
From 1 January 2023: a 2% penalty on unpaid tax after 15 days, an additional 2% after 30 days (total 4%), and a daily 4% annual rate from day 31.
Is there a grace period?
Yes — a 'soft landing' period means HMRC has generally not charged points in the first periods of a new MTD regime. Check current HMRC guidance for live rules.
What records must be kept digitally?
Business income and expense records must be kept in MTD-compatible software (e.g., Xero, QuickBooks, FreeAgent, HMRC's own app). Paper records are not permitted.
When does MTD ITSA start?
April 2026 for those with self-employment or property income over £50,000. April 2027 for £30,000+. Start date for those under £30,000 is under review.
Can I use bridging software for MTD?
Yes — bridging software can link your existing spreadsheets to MTD-compatible submission. This is permitted by HMRC as an interim solution.
Are there exemptions from MTD?
Exemptions include: digitally excluded individuals (disability, age, remote location), businesses below the VAT threshold (for MTD VAT), and those below the ITSA income thresholds.
Does MTD for ITSA affect sole traders?
Yes — from April 2026, sole traders and landlords with income over £50,000 must submit quarterly updates to HMRC via MTD software and an annual finalisation.
What happens if I don't comply with MTD?
You'll receive penalty points and potentially fixed penalties (£200+) per late submission, plus late payment penalties on unpaid tax.
Will MTD replace self assessment?
MTD for ITSA doesn't eliminate self assessment entirely but changes how information is submitted — quarterly digitally, with an annual finalisation replacing the traditional SA return.