MTD penalties confirmed by HMRC

HMRC has announced that penalties will be issued to those not completing VAT returns through Making Tax Digital (MTD) from 1 November 2022.

Anyone who files a VAT return through non-electric submission will face penalties of up to £400.

The Association of Chartered Certified Accountants warned that a points-based penalty scheme has been proposed for MTD for VAT and self-assessment income tax (MTD for ITSA).

These changes will apply to VAT customers for accounting periods on or after 1 April 2022, and to ITSA customers with a turnover above £10,000 every year for accounting periods starting on or after April 2024.

The penalty system will work as follows:

  • a default will be recorded for any mistakes or late MTD filing.
  • taxpayers will enter a surcharge period for 12 months if they make another error or fail to submit a return. A percentage of the money owed will be charged as a fine.
  • each new fault will accrue further points.
  • points will be translated into a percentage charge, between 2% and 15%.

Jim Harra, chief executive at HMRC, said:

"Businesses that file annual VAT returns will still be able to use their VAT online account until 15 May 2023.

"If your clients do not sign up for MTD and file their VAT returns through MTD-compatible software, they may have to pay a penalty."

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