Recently published guidance from HMRC outlines the penalties for not complying with Making Tax Digital for VAT (MTDfV). These have been described as ‘old fashioned’ by a professional body, so what are the main issues and how can you avoid them?
The VAT penalty system has long been criticised as outdated, and sometimes disproportionate. With the advent of MTDfV, the opportunity to modernise was taken and a new system is set to be introduced in January 2023. In the recently published guidance from HMRC, the penalties your business will face if it fails to meet the obligations under MTDfV are:
- Up to £400 for every return filed without using compatible software
- £5-15 for every day that records are not kept digitally within the compatible software
- £5-15 for every day that you do not use digital links to transfer data between pieces of software.
Calling on the government to have a rethink, The Association of Taxation Technicians has criticised the penalty system for being based on legislation introduced over 25 years ago. They’ve also questioned why HMRC hasn’t followed the same modern approach adopted with the late filing and payment penalties.
Kim Redwood-Lee says “We recommend that as soon as possible you check that you’re using compatible software and have a strict process in place for keeping records and using digital links. If not, you could be in for a nasty shock with multiple financial penalties despite filing submissions and paying VAT on time.”
