MTD Penalties for Landlords: What You Need to Know in 2026
Understanding the points-based penalty system for Making Tax Digital. Learn how to avoid late submission penalties and what happens if you miss a deadline.
The Latch Team
Editorial
Making Tax Digital introduces a new penalty regime for landlords. The points-based system means even a single late quarterly submission can start you on a path towards financial penalties.
Understanding how MTD penalties work is essential. The consequences of non-compliance range from penalty points and fixed £200 fines to escalating daily penalties and, in extreme cases, prosecution.
This guide explains the complete MTD penalty structure for landlords, including how penalty points accumulate, when financial penalties are triggered, how to appeal, and most importantly, how to avoid penalties altogether.
How the Points-Based Penalty System Works
HMRC operates a points-based penalty system for late or missing MTD submissions. This applies to quarterly updates under Making Tax Digital for Income Tax Self Assessment.
The system is designed to be progressive, giving you warnings before financial penalties are imposed. However, penalty points accumulate quickly if you regularly miss deadlines.
How You Earn Penalty Points
You receive one penalty point each time you fail to submit a quarterly update by the deadline. The deadline is one month after the end of each quarter.
For example, Quarter 1 (6 April to 5 July) must be submitted by 5 August. If you submit on 6 August or later, you receive one penalty point.
No Grace Period: Even submitting one day late results in a penalty point. There is no grace period beyond the one-month deadline.
Penalty Point Thresholds
The number of points that trigger a financial penalty depends on how often you must submit updates:
| Submission Frequency | Points Before Financial Penalty | Financial Penalty Amount |
|---|---|---|
| Quarterly (standard for landlords) | 4 points | £200 |
| Monthly | 5 points | £200 |
Most landlords submit quarterly, so four penalty points trigger a £200 fixed penalty.
What Happens at the Threshold
When you reach the penalty threshold (4 points for quarterly submissions):
- HMRC issues a £200 fixed penalty
- Your penalty point counter resets to zero
- Each subsequent late submission while you have any penalty points earns another £200 penalty and another point
This means penalties can escalate rapidly. Four late submissions in a year result in a £200 penalty. A fifth late submission results in another £200 penalty.
How Penalty Points Expire
Penalty points do not stay on your record forever. Each point expires 12 months after the deadline for the submission that earned it, provided you have submitted that update (even if late).
For example:
- You miss the Q1 deadline (5 August 2026) and receive 1 penalty point
- You submit the late Q1 update on 10 August 2026
- That penalty point expires on 5 August 2027 (12 months after the original deadline)
Submit to Start the Clock: Penalty points only expire if you eventually submit the late update. If you never submit, the point never expires.
If you submit all updates on time for 12 months, all your penalty points expire and you return to zero points.
Late Payment Penalties
Separate penalties apply if you do not pay the tax you owe by the deadline. These are in addition to penalties for late submissions.
Payment Deadline
Tax for the 2026/27 tax year is due by 31 January 2028. This is the same deadline as your final declaration.
Late Payment Penalty Structure
| Days Late | Penalty |
|---|---|
| 1+ days | Interest charged on unpaid tax (currently around 7.5% per year) |
| 15 days | First late payment penalty |
| 30 days | Second late payment penalty |
| 6 months | Additional penalty of 5% of tax still outstanding |
| 12 months | Further 5% penalty of tax still outstanding |
The exact penalty amounts for 15 and 30 days late depend on the amount of tax owed and your compliance history.
Interest Adds Up: Interest on unpaid tax accrues daily from the day after the deadline. Even if you pay just one week late, you will owe interest on the full amount for that week.
Penalties for Incorrect Returns
If HMRC discovers your quarterly submissions or final declaration contain significant errors or omissions, they can impose penalties based on the potential lost revenue.
The penalty depends on whether HMRC believes the error was:
Careless
Penalty of 0-30% of tax underpaid. Applies if you failed to take reasonable care when preparing your submission.
Deliberate
Penalty of 20-70% of tax underpaid. Applies if you knowingly submitted incorrect information.
Deliberate and Concealed
Penalty of 30-100% of tax underpaid. Applies if you deliberately hid information from HMRC.
If you discover an error and proactively notify HMRC before they discover it, penalties are reduced or eliminated.
Voluntary Disclosure: If you find an error, disclose it to HMRC immediately. Voluntary disclosure before an HMRC enquiry significantly reduces or eliminates penalties.
How to Avoid MTD Penalties
The best strategy is to never receive penalty points in the first place. Follow these practices to maintain perfect compliance:
1. Use Deadline Reminders
Set reminders for at least two weeks before each quarterly deadline. This gives you time to review your data, resolve any issues, and submit early.
Latch sends automatic email and in-app reminders before each deadline, so you never forget a submission.
2. Submit Early
Do not wait until the deadline. Submit your quarterly update as soon as the quarter ends. You can always amend the figures later if you discover errors.
3. Keep Digital Records Up to Date
Do not leave categorisation or reconciliation until the deadline. Review transactions weekly and categorise them as they occur. This makes quarterly submissions quick and stress-free.
4. Use MTD-Compatible Software
Software like Latch automates transaction import, categorisation, and submission preparation, dramatically reducing the time required for quarterly compliance.
5. Consider an Accountant
If you are not comfortable managing tax compliance yourself, engage an accountant to handle your MTD submissions. They can act as your agent and take responsibility for meeting deadlines.
- Set calendar reminders for two weeks before each quarterly deadline
- Review and categorise transactions weekly, not quarterly
- Connect bank feeds to automatically import all transactions
- Submit quarterly updates early, not on the deadline
- Keep digital receipts for all significant expenses
- Review submission summaries carefully before submitting to HMRC
What to Do If You Miss a Deadline
If you realise you have missed a quarterly deadline:
- Submit immediately: The sooner you submit, the sooner the penalty point clock starts ticking towards expiry
- Check for errors: Even though you are late, ensure the submission is accurate to avoid additional penalties for incorrect returns
- Note the penalty point: Track how many points you have to know how close you are to a financial penalty
- Set better reminders: Adjust your reminder system to avoid future late submissions
- Consider an appeal: If you had a reasonable excuse (serious illness, bereavement, disaster), you may be able to appeal the penalty
Late Is Better Than Never: Submitting late results in penalty points, but never submitting results in escalating penalties and potential HMRC enforcement action.
Appealing Penalties
You can appeal a penalty if you have a reasonable excuse for the late submission. HMRC considers reasonable excuses to include:
- Serious illness: You or a close family member was seriously ill and unable to act
- Bereavement: Death of a partner or close relative shortly before the deadline
- Unexpected hospital stay: Emergency hospital admission that prevented compliance
- Serious postal delays: Postal disruption beyond your control (rare with digital submissions)
- Computer or software failure: Failure of MTD software at the last minute, provided you tried to submit on time
- Service provider failure: Your accountant or tax agent failed to submit despite your instructions
HMRC does not generally accept these as reasonable excuses:
- Pressure of work or lack of time
- Your accountant did not remind you
- You did not receive a reminder from HMRC
- You did not understand the rules (ignorance is not a defence)
- You relied on someone else and they let you down (unless they were your agent)
How to Appeal
To appeal a penalty:
- Write to HMRC within 30 days of receiving the penalty notice
- Explain your reasonable excuse with supporting evidence
- Show that you acted without unreasonable delay once the excuse no longer applied
- Include any medical certificates, death certificates, or other documentation
HMRC will review your appeal and either accept it (cancelling the penalty) or reject it (upholding the penalty). If rejected, you can appeal to an independent tax tribunal.
Special Circumstances and Exemptions
HMRC offers very limited exemptions from Making Tax Digital. Exemptions are not granted for:
- Age (being elderly does not qualify)
- Lack of technical skills
- Preferring paper records
- Cost of software
Exemptions may be granted for:
- Religious objections: If your religious beliefs prevent you from using computers
- Remote location: If you live in a location with no internet access and no reasonable way to obtain it
- Disability: If you are unable to use digital services due to disability and no support is available
Even if you qualify for an exemption, you should still consider whether using MTD-compatible software with accountant support might be easier than managing paper records.
Serious Non-Compliance Consequences
Persistent failure to comply with MTD requirements can lead to escalating consequences beyond penalty points:
Daily Penalties
If you fail to submit updates for an extended period, HMRC can impose daily penalties (currently £10 per day, up to 90 days, for a maximum of £900).
Tax Assessments
HMRC can estimate your tax liability based on previous years or comparators and issue a tax bill. You must pay the assessed amount and can only challenge it after payment.
Surcharges
Repeated late payments can result in surcharges of up to 15% of tax owed, in addition to other penalties.
Prosecution
In extreme cases of deliberate non-compliance or tax evasion, HMRC can prosecute criminally, resulting in unlimited fines and potential imprisonment.
Take Compliance Seriously: HMRC has broad powers to enforce MTD compliance. Ignoring deadlines or hoping the problem will go away is not a strategy.
How Latch Helps You Avoid Penalties
Latch is designed to make MTD compliance effortless, helping you avoid penalty points and maintain perfect submission records.
Automatic Reminders
Email and in-app reminders two weeks before each quarterly deadline, with escalating reminders as the deadline approaches.
Submission Dashboard
Clear dashboard showing upcoming deadlines, submission status for each quarter, and penalty point tracker.
One-Click Submissions
Generate and submit quarterly updates in minutes, not hours. No complex forms or manual data entry.
Error Detection
Automatic detection of common errors (duplicates, miscategorisations, missing data) before you submit.
Historical Tracking
Complete record of all submissions, acknowledgments from HMRC, and penalty point status.
Stay Penalty-Free with Latch
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Get Started with LatchFrequently Asked Questions
Do penalty points affect my credit score?
No. MTD penalty points are an HMRC internal tracking mechanism and do not appear on your credit report or affect your credit score. Financial penalties (unpaid tax debts) can eventually affect your credit if they escalate to court judgments.
Can I pay to remove penalty points?
No. Penalty points expire 12 months after the deadline for the late submission, provided you submit the update. You cannot pay to remove points early.
What happens if I submit three days late but before HMRC sends a penalty notice?
You still receive a penalty point. Penalties are automatic based on submission dates, not when HMRC sends a notice.
If I have 3 penalty points and submit on time, do they disappear?
No. Penalty points only expire 12 months after their respective deadlines. However, submitting on time prevents additional points and keeps you below the financial penalty threshold.
Disclaimer: This guide provides general information about MTD penalties. It does not constitute tax or legal advice. Consult a qualified accountant or tax adviser for advice specific to your circumstances.
