Avoiding Penalties
Published by AIM GB LTD | September 2025

With Making Tax Digital (MTD) becoming mandatory for more taxpayers in 2026, HMRC has introduced a new penalty regime that’s clearer, stricter, and more time-sensitive than ever before. Whether you’re a sole trader, landlord, or limited company, understanding these rules is essential to avoid costly fines.

At AIM GB LTD, we help you stay compliant and penalty-free with proactive support and digital tools that keep your records in tip-top shape.

🧾 What’s Changing?
HMRC’s new system replaces the old flat-rate fines with a points-based penalty regime. It’s designed to be fairer—targeting repeat offenders while being more lenient with occasional slip-ups.

Key changes include:

Penalty points for each late submission
Financial penalties triggered after reaching a points threshold
Separate penalties for late payments
Interest charges from day one

Late Submission Penalties
Under MTD, every missed deadline earns you a penalty point. Once you reach the threshold, you’ll face a £200 fine for each additional late submission.

Thresholds:

MTD for VAT: 4 points
MTD for Income Tax (ITSA): 2 points
Points expire if you stay compliant:

12 months for VAT
24 months for ITSA

Even if no tax is due, missing a return still earns a point. That means submitting a “zero return” is just as important as filing one with figures.

💸 Late Payment Penalties
Late payments are treated even more seriously. Here’s how the charges build up:

1–15 days late: Interest only (approx. 3%)
16–30 days late: 2%–6% of unpaid tax added as a fine
31+ days late: Additional 10% penalty, plus daily interest

These penalties apply to both VAT and ITSA. However, if you set up a Time to Pay arrangement with HMRC within 15 days, you can avoid the penalty—provided you stick to the agreement.

📉 Record-Keeping & Software Compliance

MTD requires you to use HMRC-recognised software and maintain digital records. Manual spreadsheets or paper files are no longer acceptable.

Non-compliance triggers penalties such as:

Up to £3,000 for failure to keep digital records
Fines for using incompatible software
Inaccuracy penalties for incorrect submissions

How to Stay Penalty-Free
Avoiding penalties is all about consistency and preparation. Here’s your action plan:

• Use MTD-compatible software: QuickBooks, Xero, FreeAgent, Sage—all connect directly to HMRC.
• Set reminders: Automate alerts for quarterly and annual deadlines.
• Submit even if you owe nothing: A missed “zero return” still earns a point.
• Keep digital records: Store receipts, invoices, and bank data electronically.
• Talk to your accountant: We’ll help you stay compliant and avoid surprises.

Appeals & Reasonable Excuses
If you receive a penalty, you can appeal within 30 days via your HMRC account. Valid reasons include:

• Serious illness
• Bereavement
• Software failure
• HMRC error
• HMRC also has discretion to waive penalties in special circumstances. At AIM GB LTD, we help you prepare appeals and ensure your case is clearly presented.

And Finally…
MTD penalties are real, and they’re fast. But with the right tools and support, you can stay compliant and confident. At AIM GB LTD, our bookkeeping service, helps you avoid fines, meet deadlines, and keep your business compliant.

Need help? Contact us today for a free MTD compliance check.