Penalties for businesses failing to comply with Making Tax Digital

Are you signed up to Making Tax Digital for VAT? Failure to do so will result in penalties from 1 November 2022, HRMC has confirmed.

 

Legally, VAT-registered businesses are required to utilise MTD-compatible software to maintain their VAT records and file their VAT returns.

Chief Executive of HMRC, Jim Harra, said: “I’m writing to let you know that from Tuesday 1 November 2022, your clients will no longer be able to use their existing VAT online account to file their quarterly or monthly VAT returns.

“If your clients do not sign up for MTD and file their VAT returns through MTD-compatible software, they may have to pay a penalty. The best way for businesses to avoid penalties is to start using MTD now.”

Additionally, HMRC can issue a fine of up to £400 for filing a return which is not an electronic submission.

Filing Through the Incorrect Channel (FTIC) penalty

VAT registered businesses who file their VAT returns without using MTD-compatible software may be charged a Filing Through the Incorrect Channel (FTIC) penalty.

Created to support the change from paper filing to online filing, the FTIC penalty is an extension of the ‘Carter’ penalty, which was introduced in 2012 alongside compulsory online filing for VAT.

How much will businesses be charged?

The sum businesses may be required to pay depends on their revenue. A penalty relates to each return filed improperly, and is calculated as below:

  • £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
  • £400 if turnover is £22,800,001 or above.

For firms who file quarterly or monthly VAT returns, registration for MTD is required to file those due after 1 November.

Are there any exceptions?

If someone is already exempt from filing VAT returns online, they are automatically exempt from the above.

This is also the case if they or their business are put through an insolvency procedure.

Need advice on Making Tax Digital? Contact our team today.

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Posted in Blog, SMEs, Tax.