You Missed an MTD Filing Deadline. Now What?
It happens. You are running a 12-person digital agency in Shoreditch, your retainer book is solid, your project burn is under control, and then you realise: you missed the Making Tax Digital (MTD) filing deadline for VAT. Or perhaps you are a sole trader web designer turning over £65k and you missed the quarterly income tax update under MTD for ITSA.
First, do not panic. HMRC has a structured penalty system, and there are clear routes to appeal and mitigate. But you need to act quickly.
This is your recovery path. This MTD agency founder guide covers exactly what happens when you miss a deadline, how much you will be charged, how to appeal, and what to do next to stop it happening again.
What Is MTD and Who Does It Apply To?
Making Tax Digital is HMRC's programme to move tax reporting online. It started with VAT in 2019. From April 2026, it will be mandatory for self-employed individuals and landlords with qualifying income over £50,000. From April 2027, that threshold drops to £30,000.
If your agency is VAT-registered (the threshold is £90,000 turnover), you must use MTD-compatible software like Xero, QuickBooks, or FreeAgent to file your VAT returns. You cannot use the old HMRC portal anymore. If you are a sole trader or partnership with income over £50,000, you will need to file quarterly updates under MTD for ITSA from April 2026.
Missing any of these deadlines triggers penalties. The rules changed in January 2023, so if you have not filed on time since then, the penalty system you remember from before no longer applies.
The New Penalty System: Points Based, Not Flat Fines
HMRC moved to a points-based penalty system for VAT in January 2023. The same system applies to MTD for ITSA when it launches.
Here is how it works for VAT:
- You get one penalty point for each missed filing deadline.
- Once you reach a threshold number of points, you receive a £200 penalty.
- The threshold depends on how often you file. If you file quarterly, the threshold is 4 points. If you file monthly, it is 5 points. If you file annually, it is 2 points.
- Each point expires after 24 months if you file all returns on time for 12 consecutive months.
- If you reach the threshold and keep missing deadlines, you get a further £200 penalty for each subsequent missed return.
For MTD for ITSA, the system will be similar. You will accrue points for late quarterly updates and late final declarations. The penalty amount is not yet fixed for the first missed filing, but expect it to mirror the VAT approach.
Real example: A creative agency in Bristol Harbourside files quarterly VAT returns. They miss the March, June, and September deadlines. That is 3 points. They are one point away from the threshold. If they miss the December deadline too, they get a £200 penalty. If they then miss the March return, they get another £200.
The key point: one missed deadline does not mean a fine. You get points first. But if you are already carrying points, a single missed filing can tip you over the threshold.
Late Payment Penalties: Separate and Stricter
Missing the filing deadline is one thing. Missing the payment deadline is another. The late payment penalty system changed in January 2023 too.
For VAT:
- If you pay between 1 and 15 days late, you get a first warning. No penalty, but you are on notice.
- If you pay between 16 and 30 days late, you get a 2% penalty on the amount outstanding.
- If you pay more than 30 days late, you get a 2% penalty at day 30, plus a further 2% at day 31, plus 4% per annum on the outstanding amount.
For MTD for ITSA, the late payment penalties will follow a similar structure. Expect a 2% penalty at 30 days, another 2% at 31 days, and daily interest from day 31.
Real example: Your web design agency owes £12,400 in VAT and pays 45 days late. You will owe £496 in penalties (2% at day 30, 2% at day 31) plus interest on the £12,400 from day 31 to day 45. That interest is currently 7.25% per annum (Bank of England base rate plus 2.5%).
How to Check If You Have Points or Penalties
You can check your penalty points and any outstanding penalties in your HMRC online account. Log in to your VAT dashboard or your MTD for ITSA dashboard. The points are displayed clearly.
If you use accounting software like Xero or QuickBooks, your accountant can also see this information if they have agent access. As specialist agency accountants, we check our clients' points balances as part of our monthly management accounts review.
If you are unsure, ask your accountant to run a check. It takes two minutes.
Can You Appeal an MTD Penalty?
Yes. But you need a reasonable excuse. HMRC defines a reasonable excuse as something that stopped you from filing on time that was outside your control.
Common reasonable excuses that HMRC accepts:
- Serious illness or hospitalisation of you or a close family member.
- Death of a partner, director, or close family member.
- Fire, flood, or theft that destroyed your records or computer.
- Software failure that was not your fault and could not be fixed before the deadline.
- Postal delays (less common now with digital filing, but still applies to paper returns).
Reasonable excuses that HMRC does not accept:
- "I was too busy."
- "I forgot."
- "My accountant did not tell me."
- "I did not have the money to pay." (This is not a filing excuse, though it may apply to late payment.)
- "My software crashed and I did not back up."
If you have a reasonable excuse, you must write to HMRC within 30 days of the penalty notice. You can do this through your online account or by post. Include evidence: a doctor's note, a police report for theft, or a screenshot of the software error.
If HMRC rejects your appeal, you can take it to the First-tier Tribunal. Most agency founders never get this far, but it is an option.