If you read any sort of financial news, you may be fed up of hearing this, but… ALL VAT registered business are required to file VAT returns under HMRC’s Making Tax Digital (MTD) for VAT rules, for returns beginning on or after 1 April 2022.

Broadly speaking, this means two things; keeping your records digitally (including using “digital links” to transfer data between any software), and registering for MTD with HMRC.

“And what if we don’t?” I hear the rebellious amongst you cry…. Well, HMRC have now published their “Compliance checks” factsheet, setting out penalties that could be levied for non-compliance.  Misdemeanors could include;

  • Filing a VAT return without using MTD software – penalty of up to £400 per return. It is thought that HMRC will start to charge this type of penalty later in the year once all VAT records have been transferred to their new MTD database.
  • Failing to keep records digitally – penalty of £5 to £15 for each day. Records including business name, address, VAT registration, as well as the VAT figures, must be digital. This should be easy for those using a software such as Quickbooks or Sage, but could trip up those using a spreadsheet.  However any adjustments made outside the software (such as partial exemption) must also be digital.
  • Failing to use digital links to transfer data between software – penalty of £5 to £15 per day. Digital links include linked cells in spreadsheets and CSV imports and exports – but not use of “copy and paste”!

Penalties have always existed historically for MTD, but the publishing of this factsheet (and the predicted closure of the “non-MTD” VAT portal once all records have been transferred across) could indict an end to the soft-landing approach taken since MTD was introduced.

Separately, the VAT default surcharge regime, which covers late payment and late filing of VAT returns, is being reformed for returns beginning on or after 1 January 2023.  Currently, you fall into the default surcharge period by submitting or paying returns late, and must make future submissions and payments on time to leave the surcharge regime.  The new system will separate the penalties for late submission and late payment.  It gives a little more flexibility for being slightly late with payment, for example no penalty will be levied for payments made up to 15 days overdue – but does introduce late payment interest from the date the VAT is due.  Future blogs will cover this in more detail!