Making Tax Digital

Penalties for businesses failing to sign up for Making Tax Digital

Penalties for businesses failing to sign up for Making Tax Digital

HMRC’s online VAT return will close on 1 November 2022. From that date, businesses and register for MDT agent will only be able to file VAT returns. Sign up client for MTD compatible software and set up HMRC online account. Therefore, you need HMRC sign in. The online VAT return will remain available to those with a digital exclusion exemption.

Sing up for MTD time line

“From 1 November 2022, all businesses that file their VAT returns monthly or quarterly. You  must now sign up for MTD. It will use MTD-compatible software to keep their VAT records and file their VAT return. If you file annual VAT returns, you will still be able to use their HMRC online account until 15 May 2023.”

Around 10% of businesses have not signed up. Now they will register for MTD VAT software. These businesses do need to complete the sign-up MTD process. HMRC has written several letters to businesses that have not signed up. So far, HMRC payment the relevant filing method penalty.

Rather than charging the filing method penalty, HMRC is taking the approach of making it impossible. From 1 November 2022, for most businesses to file a VAT return other than using MTD compatible software. Businesses will be at risk of incurring default surcharge or, from January 2023, late submission penalties and/or late payment penalties and interest.

Penalties and interest

The amount businesses may be fined is dependent on their turnover. A penalty applies to each return filed incorrectly, and the penalty will be:

  • £100 if turnover is below £100,000.
  • £200 if turnover is between £100,000 and £5,600,000 inclusive.
  • £300 if turnover is between £5,600,001 and £22,800,000 inclusive; and
  • £400 if turnover is £22,800,001 or above.

Businesses with taxable turnover over the VAT registration threshold of £85,000 have been required to comply with Making Tax Digital (MTD) VAT rules since 2019. The requirements were extended to all VAT registered businesses from their first VAT accounting period starting on or after 1 April 2022.

The online VAT return will remain available to businesses with a digital exclusion exemption agreed with HMRC. This will help businesses that qualify for a digital exclusion exemption but are able to access the online VAT return when customers need to file perhaps with assistance through an agent. Those who cannot use the online VAT return should contact HMRC.