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Penalties to apply for missing Making Tax Digital for VAT deadlines from April 2021

During the first year of the Making Tax Digital for VAT initiative which was further extended as a result of the COVID-19 crisis, HMRC took the decision to suspend the regular accumulating penalty regimes for missed returns.  

Over the course of this ‘soft landing’ period, if businesses could prove that they had made a significant effort to meet the new MTD filing obligations, they would not receive a fine at all.  In addition to this, the requirement to comply with the new digital record keeping and complete digital journey rules were voided by HMRC. 

Despite the leniency seen above from HMRC, the regular accumulated penalty payments for late or underpaid VAT liabilities still applied. 

From April 1st 2021, the regular VAT penalty regime applies on late filings as well as on failures to keep relevant digital records or having a complete digital journey in place which means that you will not be able to manipulate data, make adjustments or simply use copy and paste in spreadsheets. 

The new rules that will be applied for MTD for VAT penalties from April 2021 can be found below: 

Stricter penalties for MTD for VAT 

The UK has recently announced an overhaul of the penalty system for MTD for VAT with the new version set to come into force from April 2021. This will apply to any infringements on the first complete VAT return on or after this date. The rules around the new regime can be found below: 

  • A default is recorded for failure to observe the MTD rules or missing a filing. 
  • Taxpayers then enter a surcharge period, lasting 12 months, if you fault again. Surcharges are % penalties of the VAT due on the latest return. 
  • An accumulated points system then applies for further faults if they happen within twelve months. (The twelve month surcharge period is reset each time there is a new fault.) 
  • The points translate into increases % surcharges for each accumulated default. They start at 2%, and scale up to 15%. 

More fines and higher interest charges for late VAT MTD payments 

As well as the new penalty system coming into force above for late submissions and not keeping a suitable digital recordkeeping and not following digital journey rules, there will also be more fines and higher interest charges. The fines handed out could be up to 100% of the VAT due or over-claimed if it is found that the returns contain careless or deliberate inaccuracies. Furthermore, the fine handed out could be up to 30% if taxpayers don’t let HMRC know that a raised assessment is too low. 

Furthermore, interest on late-paid VAT is also due. This will be charged at 3% of the VAT due. 

Next Steps? 

If you are a business that is currently using Dynamics GP or Dynamics NAV and want to avoid any of new penalties coming into force above by taking the necessary steps to ensure that your solution is MTD compliant then please get in touch with one of our MTD experts today to discuss your specific requirements. 

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