Missing your MTD deadline: why one slip can have long term consequences

In April, sole traders and SMEs will see the staggered roll-out for Making Tax Digital kick off with the beginning of the 2026 tax year. As a result, many are hustling to find the right software and digital tools for their business before the deadline hits. 

However, with concerns about lagging financial literacy in the UK, there will be some businesses that may not have the correct information to understand what is required of them, while others believe that the MTD-compliant tools they need to buy are beyond their means.

Ticking clock

As the 6th April deadline for MTD approaches, any sole trader or landlord whose annual turnover was over £50,000 for the tax year 2024/2025 must prepare. The deadline sees this group of earners joining the ranks of VAT-registered businesses who have been grappling with MTD since 2019. 

If you’re not sure how to get your affairs in order, we’ve published a detailed timeline for compliance – what sole traders need to do and by when – to help you out. However, what are the consequences if you’re among the thousands of people who miss their tax deadlines each year? 

This year alone, there were one million people who did not meet the 31 January deadline, BBC News reported. There was also a frantic rush towards the end of the day, with HMRC revealing that 475,722 people filed on the final day out of a total of roughly 11.5 million submissions. Of these, 27,456 people filed in the final hour before the cut-off. 

What happens if you miss the deadline?

While the penalty system for MTD still involves fines, like the system it precedes, experts are warning that there is a key difference. 

Accountancy firm, Grunberg, explains that the penalties are now modelled on a points system. “While a single missed deadline may not immediately cost you much, repeated breaches add up,” they share.

This means that although businesses might not feel the impact straight away, repeat offenders will receive greater financial punishments. 

The system will now see a point added every time a business misses a quarterly update or filing deadline. After four missed quarterly filings, businesses will be handed a £200 fine. However, only two missed deadlines for annual filings will result in the same fine. 

There is a separate scale of penalties for late payments. Those who pay within 15 days of the due date won’t be penalised. After 30 days, late payments will receive an initial dual penalty, after which daily interest will be accrued until the debt is cleared.  

Cumulative impact

As Money.co.uk writes, the change in approach “…aims to encourage businesses to be consistent, rather than punish one-off mistakes”.

Business owners need to know that their points record can be cleared after 12 months, but this is only if they meet each subsequent deadline (and have submitted all required returns for the past two years). As the team at Grunberg states: “This means that even one slip can have consequences that last well beyond the initial error.”

Thankfully, however, businesses will have a year of grace to become accustomed to the new system. The Association of Taxation Technicians adds: “If you’re joining MTD from April 2026, there will be no late filing penalties for quarterly updates during tax year 2026-27. This relaxation applies only to quarterly updates; penalty points will still apply if you’re late filing your MTD tax return for 2026-27.”

Beyond the standard penalty points system, businesses should also be aware that there are additional fines to consider. For example, if businesses are deemed not to have kept adequate digital records for their tax return, they can be hit with up to £3000 in fines each quarter. This fine can also be levied for not using compatible software and neglecting to send quarterly updates to HMRC through said software. 

If businesses are proven to have deliberately concealed information that HMRC needs to calculate their tax liability, a penalty of £300 will be issued.

Appealing against penalties

If business owners feel that they are being unjustly penalised, whether because a mistake has been made or they have a reason to justify a missed deadline, there is a process they can follow.

The first step is to visit the Government information page on penalties, but HMRC also advises paying the penalty straight away in case your appeal is rejected and you accrue interest. 

Business owners can appeal both online or by downloading a SA370 or SA371 form. Information required will include the details of when the penalty was issued, the date the tax return was submitted (if it has been), and the date that the tax was paid (if it has been paid). HMRC adds that it will also need “…details of your reasonable excuse for filing your return late, or not making your payment on time.”

However, as you would expect, it’s far less costly to avoid finding yourself in this position in the first place. While it may feel onerous, spending the time now to research digital financial tools and put everything in place ahead of the April deadline will ultimately save stress, money, and time.