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New Tax Penalties – MTD for VAT

Last month it was announced that plans for two new penalties regimes would come into effect in January 2023. These were due to be implemented in April 2022 but have since been deferred. As a business owner, you’ll need to know whether this will change the way you do your VAT. This blog aims to help you understand the key implications of these two new systems.

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What are the new penalty regimes for Making Tax Digital?

The new penalty regimes for MTD will apply for all VAT periods beginning on and after 1 January 2023.  These penalties will apply to businesses that do not comply with the new regulations. There will be two separate penalties for late payment and late filing. HMRC have been planning these penalty regimes for a while. However, they are more complicated compared to previous regimes for other taxes such as Self-Assessment. For this reason, more time for programming their IT systems is required. This is so they can align it with the final roll out of these regimes.

How will the new penalty regimes apply to VAT periods on and after 1 January 2023?

HMRC will have powers to impose penalties on taxpayers who file their VAT return late and provide payment of VAT late.  

If the new MTD for VAT process is not complied with and is not filed on time, taxpayers may find themselves with a minimum £400 penalty. If the required VAT records are not kept, HMRC can charge up to £500 in penalties.

With regards to the late payment penalty, traders will not be charged if the VAT payment is made within 14 days of the due date. However, interest will be accrued during this period. This then increases to a 2% charge between day 15 and day 30. Anything after day 30 will hold a 4% charge.

How do I comply with the new penalty regimes?

If you are a VAT-registered person, you will need to submit a VAT return under the new MTD filing process. If you fail to do this you will have to pay the penalty. As we get closer to the date the new regimes kick in, it is important that you are aware of all the changes and what they mean for you. It is worth getting your VAT return procedures in order now so that there is no last-minute changes that cause delay or problems which may incur a penalty.

We know that this can be a big change to implement, but we are here to be your personal guides to making your tax digital for VAT. If you found this blog post informative and helpful but would like to discuss the new changes in more detail, please don’t hesitate to reach out to us. You can use the form below to leave your details.