Making Tax Digital: A quick guide to penalties for late filing and payments

George Hay Chartered Accountants

The Government recently published the Finance Bill 2018-19, within which a new two-tier penalty system for the Making Tax Digital (MTD) regime is outlined.

MTD for VAT will apply from April 2019 for most VAT-registered businesses and landlords, whose turnover exceeds £85,000, requiring them to maintain digital records and digitally submit quarterly VAT returns.

Despite many having raised concerns during the consultation period about the new penalty system being unnecessarily complex, the Government asserts that the regime is fit for purpose and will be implemented as planned.

The proposed penalty regime for late payments will be enforced within 15 days of an overdue tax payment, whilst for those who file late penalties will not come into force until April 2020.

HMRC has confirmed that penalties for failure to keep digital records will also apply from April 2019.

So, how will the two-tier MTD penalty system work?

Late filing

Late filing will attract penalty points, which will accrue based on how late the filing is and how many filings have been submitted late.

Points will accrue up to a pre-defined threshold dictated by the frequency of the taxpayers filing obligations, at which point HMRC will charge a penalty for each missed submission.

Penalty thresholds apply as follows:

  • Annual submissions: 2 points
  • Quarterly submissions: 4 points
  • Monthly submissions: 5 points

It is possible for taxpayers to have their points erased, though this requires a period of good compliance to have been met.

Good compliance periods apply as follows:

  • Annual submissions: 2 submissions
  • Quarterly submissions: 4 submissions
  • Monthly submissions: 6 submissions

Both penalty points and fines are appealable, giving taxpayers the opportunity to submit reasonable excuses for missed deadlines.

Late payment

A separate penalty system will apply where a taxpayer fails to pay the tax they owe on time.

Penalties will be calculated on debts owing after 15 days from the payment due date, though will apply on a mitigated basis where payment is made or a Time to Pay arrangement (TTP) has been agreed before 30 days after the due date.

This system will be founded on a two-charge model, as follows:

  • if a payment or TTP is made or treated as made within 15 days of the due date no penalty will be charged;
  • between 16 and 30 days half a penalty will be charged;
  • after 30 days a full penalty will be charged plus a further penalty which will then accrue daily until payment is made or a TTP treated as made.

Do you have doubts about going digital?

We want to see the businesses we work alongside continue to thrive following the move to MTD and we are already helping many of our clients to look at it as an opportunity, not something to oppose.

Our experts can help you when it comes to choosing and implementing a system matched to your businesses requirements and we can provide professional advice throughout the transition and beyond.

We support a range of online accounting software packages so, when it comes time to take the leap, we have trained advisers on hand to provide as much or as little assistance as you require.

If you’re yet to begin thinking about how you intend to comply with the new requirements, what better way to start than by reserving a place at our FREE Making Tax Digital Seminar, here. To find out more about what we can do for you, contact us today.

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