MTD Penalties for Landlords: The New Points System Explained (2026)

How the new penalty system works

The new MTD penalty regime splits penalties into two entirely separate systems: one for late submissions and one for late payments. You can be penalised under both simultaneously.

Under the old Self Assessment system, missing the 31 January deadline meant an automatic £100 fine, with escalating penalties over time. The new system is different in two important ways:

• Late submissions use a points-based system. You accumulate points for missed deadlines. No fine until you reach the threshold.
• Late payments use a tiered percentage system. Penalties are calculated as a percentage of the tax you owe, starting 15 days after the due date.

This means a landlord who files on time but pays late faces different consequences to one who files late but pays on time. HMRC tracks both independently.

The system applies to all quarterly updates and the Final Declaration under MTD for Income Tax.

Late submission penalties: the points system

Each time you miss a quarterly submission deadline, you receive 1 penalty point. When you accumulate 4 points, you receive a £200 fixed penalty. Every subsequent late submission also triggers a £200 penalty until you reset your points.

How points accumulate

The penalty threshold for quarterly obligations (which includes MTD for Income Tax) is 4 points. This gives you some breathing room - missing a single deadline will not result in a fine.

Example: how it works in practice

Sarah is a landlord who enters MTD in April 2026. She misses her Q2 deadline in November 2026 (1 point). She files Q1, Q3, and Q4 on time. She then misses Q1 of the following year (2 points). She is still below the threshold, so she pays nothing in late submission penalties.

If Sarah had missed all four quarterly deadlines in a single year, she would reach 4 points and receive a £200 penalty on the fourth missed deadline.

How points expire and reset

Below the threshold: Individual points expire automatically after 2 years from the date they were issued, provided you have not hit the 4-point threshold.

At or above the threshold: Once you hit 4 points and receive a penalty, points do not expire automatically. To reset, you must:

1. Bring all outstanding returns from the past 24 months up to date
2. Maintain full compliance (no late submissions) for 12 consecutive months

Only after meeting both conditions do your points reset to zero.

Late payment penalties: tiered charges

Late payment penalties are entirely separate from submission points. They are based on the amount of tax you owe and how long it remains unpaid. There is a 15-day grace period before any penalty applies.

Example: late payment in practice

James owes £8,000 in tax. He misses the payment deadline and pays 20 days later. His penalty: 2% of £8,000 = £160, plus interest for the 20 days. If he had paid within 15 days, he would have paid no penalty at all (just interest from the due date).

If James still had not paid after 31 days, a further 2% would be charged, bringing the total penalty to 4% of £8,000 = £320, plus daily interest continuing to accrue.

Key point: Late payment penalties apply to all tax due under MTD, including balancing payments with the Final Declaration. The 15-day grace period gives you a narrow window to arrange payment without penalty.

The soft landing year (2026-27): what is and is not protected

HMRC is offering a soft landing for landlords entering MTD from April 2026. During the first year, you will not receive penalty points for late quarterly updates. However, late payment penalties apply in full from day one. Landlords entering MTD from April 2028 onwards get no soft landing at all.

This is a critical distinction that many landlords misunderstand. The soft landing is not a blanket amnesty. Here is exactly what it covers:

What is protected (year one only)

• No penalty points for late quarterly updates during the first 12 months
• Applies only to landlords entering MTD from 6 April 2026
• Covers the four quarterly updates for the 2026-27 tax year

What is NOT protected

• Late payment penalties apply from April 2026 - the soft landing does not cover payments
• Interest on late payments accrues from the due date regardless
• The Final Declaration (due 31 January 2028) is not covered by the soft landing
• Landlords entering MTD from April 2028 (£30k+ threshold) receive no soft landing whatsoever

In practice, this means you should still aim to file quarterly updates on time during the soft landing period. Use the year to build good habits and establish your record-keeping systems. If you struggle with the first few submissions, at least you will not face financial penalties for late filing.

But if you owe tax and pay it late, you will be penalised from day one. There is no grace period for payments beyond the standard 15-day window.

Quarterly deadline calendar: 2026-27 tax year

MTD quarterly updates must be filed within one month and two days of the end of each quarter. The quarterly deadlines for the first MTD year are set out below.

Each quarterly update requires you to submit a summary of your income and expenses for that period through MTD-compatible software. The Final Declaration replaces the traditional Self Assessment tax return and is where you confirm your figures, claim reliefs, and finalise your tax liability.

Missing any of these five deadlines adds a penalty point (except during the soft landing period for quarterly updates). Plan ahead: set reminders at least two weeks before each deadline to give yourself time to gather records and file.

How to avoid MTD penalties

The most effective way to avoid penalties is to track your income and expenses throughout each quarter rather than scrambling at the deadline. Digital record-keeping and calendar reminders eliminate most penalty risk.

Practical steps to stay penalty-free

1. Register for MTD before April 2026. Do not wait until the last minute. Register with HMRC and set up your compatible software well in advance.
2. Record expenses as they happen. Photograph receipts and log transactions weekly. Quarterly filing is straightforward when records are already organised.
3. Set calendar reminders. Add all five deadlines (four quarterly plus the Final Declaration) to your calendar with two-week advance warnings.
4. Use MTD-compatible software. Manual spreadsheets will not meet MTD requirements. Choose software that can submit directly to HMRC via their API.
5. Pay estimated tax early. If you cannot pay in full by the deadline, pay what you can within 15 days to minimise late payment penalties.
6. Check your filing obligations. Know whether your combined property and self-employment income puts you above the £50,000 threshold. Use gross income, not profit.
7. Keep 24 months of records current. If you do accumulate points, you will need all returns from the past 24 months filed to reset them.

The new system rewards consistent compliance. Even if you accumulate a point or two, maintaining good habits prevents you from reaching the penalty threshold.