How to Appeal a Late Submission Penalty for Making Tax Digital for Income Tax

Missing any tax deadline can feel stressful but HMRC’s new penalty system for MTD is designed to penalise persistent late filing rather than one-off mistakes.

What’s more, using MTD-compliant software like Coconut makes managing your quarterly updates easier, keeping you organised and on top of every deadline. 

If you’ve already received a penalty point or £200 fine and have a valid reason for missing the deadline, you can challenge it. And knowing how to appeal late submission penalties under MTD ITSA can help to protect your business budget and keep your records clean.

How the MTD ITSA penalty system works

Unlike the old Self Assessment process that charged instant £100 fines, the new MTD system uses a points system much like a drivers license:

• One late submission = one penalty point.
• There’s a four point threshold.
• An automatic £200 fine if you reach four points. 
• Every subsequent late submission when you’re at the threshold costs an extra £200.

You can appeal an individual penalty point as soon as it's issued. You don’t need to wait until you hit four points and receive a fine.

What qualifies as a reasonable excuse?

HMRC will only overturn a penalty point or fine if you have a reasonable excuse. This means an unexpected event or circumstance beyond your control that directly prevented you from filing on time. For example:

1. Serious illness, emergency, unexpected hospital admission
2. The death of a close family member or business partner 
3. Software or tech failures outside of HMRC’s control
4. Disasters and unforeseen events such as flood, fire, theft or major post/telecom disruptions.

Simply forgetting the deadline, being too busy or not understanding your MTD software aren’t valid excuses. You also can’t blame it on your accountant as you remain legally responsible for your tax submissions. 

Step-by-step: how to appeal late submission penalties

If you do want to start the appeal process, there are a few things you need to do:

1. Gather your supporting evidence. Before starting your appeal, collect clear documentation that proves your excuse. This might be a doctor’s note or hospital admission letter, error screenshots, police reports or death certificates.
   
   
2. Submit your appeal within 30 days from the date on the HMRC notification letter. The quickest way to do this is online via your tax account but you can also fill out form SA370 and send it to HMRC by post. Don’t forget to include evidence.
   
   
3. Catch up on the missed filing immediately. HMRC requires you to resolve the delay as soon as your reasonable excuse ends. It’s important to submit the overdue quarterly update right away.
   
   
4. Await HMRC’s decision. They will review your submission and write back. If successful, the point or fine will be cancelled and removed from your record. If rejected, you can request an internal HMRC review or take the appeal to an independent tax tribunal. 

What happens if your appeal is rejected?

If HMRC decides that you don’t have a reasonable excuse, there are still options: 

1. Request an internal review. You can ask for a different and impartial HMRC officer to review the case. However, this must be requested within 30 days of the rejection notice.
   
   
2. Go to an independent tax tribunal. Here, an independent judge will review the evidence from both you and HMRC.
   
   
3. Pay the fine to avoid interest. If you’ve been issued a £200 fine alongside rejected appeals, it’s best to pay it promptly. This is because late payment penalties accumulate interest on top of penalties and fines. 

Do penalty points expire?

Even if you don’t appeal a penalty point, they don’t stay on your record forever. But it does require action and compliance. If you’re below the four-point threshold, individual points expire automatically after 24 months provided you keep your submissions up to date. 

Once you hit four points, you must meet two conditions to reset your points balance back to zero. They will not automatically expire after two years. First, complete a period of 12 months of compliance. This means submitting every MTD quarterly update and final declaration on time. Secondly, you need to make sure every outstanding submission from the last 24 months has been submitted.

How to prevent MTD ITSA penalties 

Appealing takes time and can be stressful so preventing points altogether is always the best strategy. 

1. Set deadline reminders and mark them early so you have time to prepare. 
2. Automate expenses and income. Relying on manual spreadsheets creates deadline pressure. Instead, using MTD-compliant software like Coconut automates income tracking, categorises expenses in real time and captures receipts instantly. 
3. Review digital records monthly. Check your accounts at the end of every month so quarterly updates take minutes instead of hours. 
4. Share access with your accountant. Coconut allows you to invite your accountant directly into the app so they can review your numbers before the deadline.
5. Take our MTD quiz to check how prepared you are!

So, what are you waiting for? Streamline your MTD ITSA filings with Coconut and let late submission penalties become a thing of the past.

FAQs about MTD penalties