Glossary · UK
What is Points-Based Penalty System (MTD)?
HMRC's penalty regime for late VAT and Making Tax Digital for Income Tax submissions, where a taxpayer accrues a point for each missed deadline and only faces a fixed £200 financial penalty once a points threshold is reached.
Full Definition
The points-based penalty system is HMRC's replacement for the old automatic late-filing penalties, first introduced for VAT returns and being extended to Self Assessment as Making Tax Digital for Income Tax is rolled out from April 2026. Rather than an immediate financial penalty for every single late submission, a taxpayer receives one penalty point each time they miss a submission deadline. Once the points reach a threshold that depends on how frequently returns are due -- 4 points for annual filers, 5 points for quarterly filers (relevant to most people brought into MTD for Income Tax), and 5 points for monthly filers -- a fixed £200 penalty is charged, and a further £200 penalty is charged for each subsequent late submission while at the threshold. Points expire automatically after 24 months, provided the taxpayer has both filed on time throughout a fixed compliance period and brought all outstanding submissions up to date. Separately, late payment penalties still apply on unpaid tax: broadly a 3% penalty if tax is 15 days late, a further 3% at 30 days, and an ongoing daily rate at 31 days or more, alongside interest on the outstanding balance at the Bank of England base rate plus a margin. The points system is designed to be more forgiving of a single, one-off missed deadline than the old regime, while still penalising a persistent pattern of late filing.