Filing VAT returns using making tax digital (MTD)-compatible software will be compulsory for all VAT registered traders for periods beginning on or after 1 April 2022 unless HMRC agrees that the taxpayer is exempt.
Sole traders will also have to file quarterly and annual income tax reports using MTD software from 6 April 2024 and most partnerships will join the MTD regime from 2025.
To encourage taxpayers to file their MTD reports on time the Government is introducing a new system of points-based penalties for late filing.
One point is awarded for each late filing. When you reach a certain points threshold a £200 penalty will be imposed. The threshold depends on the submission frequency of the return:
|Submission frequency||Penalty threshold||Period of compliance|
|Annual||2 points||24 months|
|Quarterly||4 points||12 months|
|Monthly||5 points||6 months|
For quarterly returns the fourth point triggers the £200 penalty. Every late submission after that penalty is imposed will trigger another £200 penalty but additional penalties will not add further points to the points slate.
Each point will expire after two years starting from the month after the month in which the late filing occurred.
The points slate can only be wiped clean if the taxpayer achieves both:
- zero late submissions for a period of compliance (see table); and
- all returns for the previous 24 months have been filed, even if filed late.
Appeals can be lodged against all points and penalties levied by HMRC.
If you have any questions about the above, or would like more information specific to your circumstances, please enter your email address below and we will get in touch: