A closer look at MTD penalties
This replaces the existing VAT penalty system, where penalties are calculated using a percentage of the outstanding VAT amount for the default period. Unfortunately, under this new points-based system, there will be no light touch approach, and businesses must get this right from the start to avoid any penalty charges.
The new penalty system means:
- Businesses will receive one point for each submission deadline that they miss.
- A financial penalty of £200 will be payable once points exceed a particular threshold. (Businesses filing quarterly returns, applicable to both VAT and MTD for ITSA, have a threshold of four points.)
- Once the threshold has been breached, businesses will incur further penalties for additional failures to make submissions on time, but points won’t increase.
- Points will expire after two years, but will remain in place when businesses are at the threshold to ensure there is a period of compliance before any points are reset.
HMRC has stated that the new points-based system has been planned with fairness in mind so that only a minority of businesses are penalised for making repeated and frequent errors, rather than businesses that make occasional and genuine mistakes.
Making Tax Digital for small businesses
Our comprehensive guide covers everything you need to know about Making Tax Digital (MTD) for VAT as a small business owner.
- Introduction to Making Tax Digital
- A closer look at MTD for VAT requirements
- How to sign up to MTD for VAT
- MTD for VAT: key dates for your business
- Making Tax Digital exemptions
- Making Tax Digital penalties
- Choosing the right MTD software for your business
- A closer look at MTD bridging software
- Using Xero’s MTD software