If your business is eligible for VAT, then one thing that will always cross your mind is “What if you got late to pay VAT returns?” and “What are the MTD VAT penalties in that case?”
Then, here are the answers to all your such concerns:
MTD VAT Penalties and The Soft Landing Period
HMRC was aware that the transition from manual to digital systems would be challenging for some businesses and organizations. Therefore, they announced a soft landing time of one year.
This “soft landing” offered by HMRC is only applicable to “digital linkages.” What digital linkages are all about is the movement of data or the interchange of data between different software. Due to the fact that you cannot copy and paste the data in the spreadsheet. According to the MTD, this is against the rules, although it is acceptable under soft landing.
MTD Penalties for Filing VAT Incorrectly
HMRC can fine non-electronic returns up to £400. This penalty has been broadened to include the necessity to file using MTD-compliant software.
In the past, this penalty was rarely used. As long as the business makes reasonable steps to comply, HMRC will be tolerant.
MTD Penalties for submitting VAT Returns Late
Default surcharge in the situation that VAT returns are paid late, a penalty will be applied. The initial missed payment of VAT does not result in the application of a surcharge. Businesses that make their VAT payments on time are exempt from being charged late penalties. As a result of this, HMRC did not believe that it was essential to give an additional “soft landing” for surcharges. Therefore, there are efforts being made to alter the fees. As a consequence of this, it is quite likely that a punishment that is based on points will be implemented. Both late payments and late submissions will be subject to this penalty.
Other Penalties
There are several more VAT-related penalties like intentional inaccuracies, failure to register, and a pattern of late filing and/or payment.
The only flexibility is that HMRC has said that they will be more resilient with MTD. However, only if the organization can show that it has made reasonable attempts to comply with MTD.
How Much HMRC Fines?
If you achieve a certain number of penalty points, you will be liable to a fine of £200. Once you have reached that point, you will be subject to a fee for each subsequent missed payment due to a late payment. The following is the minimum point requirement for submissions:
Submissions made on a monthly basis: Companies that provide HMRC with submissions on a monthly basis will need to accumulate five points before the £200 punishment may be enforced.
Submissions made on a quarterly basis Companies that provide HMRC with submissions on a quarterly basis will be required to accumulate four points before the £200 penalty fee is enforced. Companies that update their MTD for income tax and file quarterly VAT reports are included in this category.
Submissions made on an annual basis If you provide HMRC with submissions made on an annual basis, you will need to accumulate two points before the £200 penalty fee is issued.
Existing and New MTD Penalty System
Within the framework of the current penalty system, the following fines are applicable on VAT returns:
- To the full amount of the tax that was either underpaid or overclaimed.
- If HMRC provides you with an estimate that is too low and you don’t correct it within 30 days, you might face a fine of up to 30 percent of the total assessment.
- A paper return costs £400, regardless of whether or not you qualify for any exemptions.
The new points-based penalty system will be implemented for VAT periods that begin in January 2023 or later. In the event that compliance is not met, the following fines shall be applied:
- If you hit the points level for late submissions, you will be subject to a fee of £200. If you continue to miss payment deadlines throughout the surcharge period, you will be subject to further fines.
- There will be no late fees assessed for payments received within 15 calendar days of the day they were due.
- A penalty equal to 2% of the total amount owed will be applied to payments, that are made between 16 and 30 days after the date on which they were due.
If you still owe tax after 30 days, you will be liable to a penalty that is equal to 2% of the total amount due on day 15, plus 2% of the total amount due on day 30. In most cases, this amounts to a total fee that is 4%. If you still owe tax after the 31st day, you will be subject to a penalty equal to 4% of the total amount that is still owed. This penalty will be imposed daily.
If you use software that is compliant with the MTD, such as Moneypex, and if you fulfill the dates for your filings, you won’t be subject to any fines.
Can Fines be Waived by HMRC?
Taxpayers have the ability to challenge any points or fines incurred as a result of MTD. This does not ensure that HMRC will forego any fines that have been assessed. In order to avoid being penalized for missing a deadline, you will
need to use the reviews and appeals procedure and provide a valid cause for your absence.
A light-touch approach will be taken during the first year of the points-based penalty system, according to HMRC, “where a taxpayer is doing their best to comply” with MTD for VAT rules. This means that the first penalty, which would have been 2% of the overdue amount and would have been assessed after 15 days, will be waived.
In some situations, HMRC may, at its discretion, decide not to deduct a point from a taxpayer’s record or impose a penalty. They will base their choices on the guidelines that have been issued.
Wrap Up
Making Tax Digital (MTD) for VAT mandates that all businesses that are registered for VAT must use the software. Which is compliant with the standard in order to maintain digital records and file VAT returns. Taxpayers who do not correctly comply with the regulations will be subject to fines imposed by HMRC. As is the case in many other areas of the law. This article includes an explanation of all of the MTD for VAT fines that have been imposed by HMRC. As well as a refresher on the procedures that you need to carry out in order to adhere to the regulations and stay out of legal trouble.
Avoid VAT Penalties with Moneypex
If your business is VAT registered, you need to follow the rules of MTD for VAT, meet each VAT return deadline and pay your VAT bills on time in order to avoid incurring any of HMRC’s MTD for VAT penalties. This implies that you need to sign up for MTD for VAT on the HMRC website. If you haven’t previously done so and then sign up for MTD-compatible software like Moneypex if you haven’t already done so.
Moneypex is MTD-compatible accounting software that helps you stay tax-ready all year round and pay your VAT return to HMRC in a few clicks straight from the software. Get a free demo and stay on top of your VAT deadlines already.
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