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 ICAEW qualified 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.

What If You Miss a Deadline Because of Your Accountant?

This is a grey area. HMRC generally holds you responsible for your agent's actions. If your accountant misses the deadline, HMRC will still penalise you.

However, if your accountant gave you incorrect advice or failed to file despite you providing the information on time, you may have a reasonable excuse. You would need to show that you took reasonable care and relied on professional advice.

This is one reason we stress the importance of working with accountants who understand MTD. If your accountant is still filing VAT returns manually through the old portal, they are not MTD-compliant. You need someone using MTD-compatible software. Our ICAEW qualified team uses Xero and QuickBooks for all MTD filings, and we set calendar reminders 14 days before every deadline.

How to Mitigate Future Risk

Once you have dealt with the immediate penalty, you need to stop it happening again. Here is a practical checklist for agency founders:

1. Know Your Filing Frequency

Check whether you file VAT quarterly, monthly, or annually. Most agencies file quarterly. If you are on the Annual Accounting Scheme, you file once a year plus interim payments. Know your dates. Put them in your calendar with a 14-day reminder.

2. Use MTD-Compatible Software

If you are still using spreadsheets or old desktop software, switch now. Xero, QuickBooks, and FreeAgent all integrate with MTD. They automatically submit your returns to HMRC. You cannot file manually anymore if you are VAT-registered.

MTD requires digital links between software. That means no copying and pasting from spreadsheets into the filing software. Your bookkeeping, calculations, and filing must all be in compatible software that talks to each other. If you use Dext for receipt capture, make sure it integrates with your accounting software.

4. File Early, Pay on Time

You do not have to wait until the deadline. File your VAT return as soon as you have the data. If you use management accounts software like Float or Spotlight Reporting, you can see your VAT liability weeks before the deadline. Pay it early too. HMRC does not charge extra for early payment.

5. Appoint a Point Person

If you have a finance manager or bookkeeper, make them responsible for MTD deadlines. If you are a sole trader, set up automated reminders in your phone and your accounting software. Do not rely on memory.

6. Review Your Points Balance Quarterly

As part of your quarterly management accounts review, check your HMRC penalty points. If you are at 3 points for quarterly VAT, you are one missed deadline away from a £200 penalty. That should focus your attention.

What About MTD for ITSA?

If you are a sole trader agency founder or a partner in an agency partnership, MTD for ITSA applies to you from April 2026 if your qualifying income is over £50,000. From April 2027, it applies if your income is over £30,000.

Under MTD for ITSA, you will file quarterly updates (not full tax returns) and a final declaration at year end. The penalty system will be points-based, just like VAT.

If you miss a quarterly update deadline, you get a point. If you reach the threshold (likely 4 points for quarterly filers), you get a £200 penalty. The same appeal and mitigation process applies.

For agencies that are already VAT-registered and using MTD-compatible software, the transition to MTD for ITSA should be straightforward. Your software will handle both. If you are not yet using MTD software, now is the time to start. Do not wait until April 2026.

What to Do Right Now If You Have Missed a Deadline

Step 1: File the return immediately. Even if it is late, filing stops further points accruing and limits late payment penalties.

Step 2: Pay the VAT or tax due. If you cannot pay in full, contact HMRC's Time to Pay service. They will set up a payment plan. The interest rate is high (currently 7.25%), but a payment plan is better than a default.

Step 3: Check your points balance. If you are close to the threshold, set up alerts to ensure you never miss another deadline.

Step 4: If you have received a penalty notice and have a reasonable excuse, appeal within 30 days.

Step 5: Review your systems. If you missed the deadline because of a process failure (not a one-off emergency), fix the process. That might mean switching software, hiring a bookkeeper, or changing your accountant.

When to Get Professional Help

If you have multiple missed deadlines, a high points balance, or a penalty you believe is unfair, speak to a qualified accountant. The appeal process requires careful wording and evidence. HMRC rejects poorly prepared appeals quickly.

If you are an agency founder and you are unsure whether your current accountant is handling MTD correctly, ask them. They should be able to tell you your filing dates, your points balance, and your penalty exposure within five minutes. If they cannot, that is a red flag.

At Agency Founder Finance, we work exclusively with agency founders. We know the MTD deadlines, the penalty points system, and the appeal process. If you need help, contact us. We can review your MTD compliance, check your points balance, and set up a system that keeps you compliant going forward.

Missing a deadline is not the end of the world. Missing the recovery steps is.