This blog was first published in April 2022 and updated in January 2023.
you VAT registered businessYou may have received letters and emails from HMRC. Digitalization of tax (MTD) VAT has been introduced.
The system, which arrived earlier this year, is described as: simplified penalties The aim is to make VAT submissions and payment delays fairer and more balanced for customers.
Penalties may sound more like a stick than a carrot, but there are a lot of carrots when it comes to MTD compliance. Small businesses and their advisors can use VAT’s MTD as a starting point to their digital transformation. Adopt these tools to take advantage of this opportunity to increase efficiency not only in your tax process, but across your business.
Still, non-compliance can have real consequences. With that in mind, we’ve broken down the penalties for not meeting the MTD requirements so you can avoid nasty surprises.
What is the MTD penalty system?
A new point-based MTD penalty system will be introduced from January 2023. One point will be awarded for missing the submission deadline, while the penalty for violating the MTD will depend on the frequency of submissions.
Businesses that frequently miss deadlines earn points that convert into fines once they reach a certain point threshold.There are other ways to be punished – if you don’t have a digital record, or digital link For example, on the fly.
If you submit annually, there will be a penalty if you add 2 points. Quarterly submissions will result in a 4 point penalty.This also applies to Income Tax Self-Assessment MTD (that is). For monthly submissions, taxpayers who collect 5 points face penalties.
A fine is incurred when the sending penalty threshold is reached.
You can dispute MTD points and penalties, but you must use the review and appeal process and have a valid reason for missing the deadline.
When did the penalty system start?
A penalty system will be introduced in the VAT MTD in January 2023, Existing Penalty System.
For non-VAT registered sole proprietors and landlords, penalties will apply when the ITSA MTD comes into force in April 2024.
Do MTD penalty points expire?
MTD Penalty Points expire two years after the month in which the points were received.
For example, if you receive penalty points in April, your timeline will begin in May. Points do not expire when the penalty threshold is reached.
How much is the fine?
If you reach the penalty threshold, you will be fined £200. Additional fines will be incurred if payment is not made on time thereafter.
How can I avoid penalties?
Total points accrue separately for each submission obligation. So if you have to file a VAT return as well as comply with his MTD rules of the ITSA which requires quarterly updates, you can earn both points separately.
As for how you can comply, that part is simple. It’s about following the rules.make sure you have compatible software and that the digital link is in place and that the required materials are submitted on time.
It is important to remember that once the new points-based system comes into effect, consistently compliant taxpayers will not be unfairly penalized for making occasional errors. Only those who commit crimes face penalties and sanctions.
With that in mind, you can forget the sticks and focus on the carrot of digital transformation and improving the efficiency of your business.