Making Tax Digital for VAT becomes mandatory

8 months ago by Oliver Atkinson

From the 1st of April 2022, submission of VAT Returns through HMRC’s Making Tax Digital for VAT system is now a mandatory reporting requirement for VAT-registered businesses. The government estimates around 750,000 businesses are yet to sign up for the system, which will be required for any VAT Returns for periods starting on or after the 1st of April.

In conjunction with the new requirement, HMRC have introduced two new penalties for businesses that make late submissions and payments.

The first, in relation to late submissions, is an automatic point-based system. A point will be accrued any time a submission deadline is missed and will trigger a flat £200 penalty once the penalty threshold is breached. The thresholds are set out below, depending on the frequency of your VAT submissions:

The points do expire after a 2-year period if they have not contributed towards a penalty being levied. If a penalty has been issued, then a period of ‘good compliance’ must be observed for the relevant period – that is, ensuring all submissions are made on time – in order for the points to reset.

The second new penalty being introduced is in relation to late payments. Similar to the above, it is automatically applied if a payment is missed, and works as follows:

• No penalty for first 15 days of non-payment after due date
• Penalty of 2% of outstanding amount if paid 16 to 30 days after due date
• Penalty of 2% outstanding, plus 2% of balance on day 30, if paid 31 days after due date
• Daily penalty of 4% (per annum) of the outstanding amount from day 31 onwards until paid

The new penalties are not intended to replace the current system, but to work alongside them. As such the previously existing VAT penalty regime will continue to operate as previously, with the new system relating to only timing of submissions and payments.

If you have not yet signed up for Making Tax Digital and are currently running a VAT-registered business, there really is no better time to get on board with MTD than now in order to stay ahead of HMRC’s new penalties and ensure your business stays compliant.