In addition to a brand new, digitised tax system, Making Tax Digital Making Tax Digitalfor VAT can even see the introduction of two new HMRC penalty regimes for late submissions and late funds, which is able to subsequently apply to Revenue Tax Self Evaluation.
So long as you proceed to be diligent about deadlines, there’s nothing to fret about – HMRC’s new method is designed to be fairer and fewer extreme, which it hopes will promote extra well timed submissions, leading to fewer penalties.
This text will clarify how the brand new techniques work, after they come into pressure, and what your tasks are.
When do the HMRC penalty techniques come into pressure?
The brand new penalty techniques will apply to any VAT submissions for tax intervals beginning on or after 1 January 2023.
They had been initially scheduled to be launched alongside the total rollout of MTD for VAT this April, however had been pushed again by 9 months on account of deficiencies in HMRC’s IT system.
The brand new techniques can even apply to Revenue Tax and Self Evaluation (ITSA) and shall be launched on 6 April 2024 for ITSA prospects who’re mandated for MTD and 6 April 2025 for all different ITSA prospects.
What’s the new HMRC penalty system?
The brand new penalties for late submission shall be utilized to you in case you fail to satisfy your obligations to make submissions to HMRC on time.
As an alternative of receiving an automated penalty from HMRC for each late submission, you’ll incur quite a lot of factors every time you miss a deadline, and solely be penalised in case you hit a sure threshold.
How do the late submissions penalties work?
You’ll rack up factors for each missed submission deadline, and be charged a monetary penalty of £200 while you attain a sure threshold.
The thresholds, that are decided by how usually you’re required to make a submission to HMRC, are as follows:
- Annual – 2 factors
- Quarterly (together with MTD for ITSA) – 4 factors
- Month-to-month – 5 factors
Crucially, you’ll have totally different factors totals for MTD for VAT and ITSA. So in case you attain the factors threshold for late VAT returns and subsequently for Revenue Tax, you’ll be charged two separate £200 penalties.
Generally, to make compliance simpler, even when you have two or extra failures regarding the identical submission obligation in the identical month, you’ll solely incur a single level.
Nevertheless, this rule won’t apply throughout a number of MTD for ITSA submission obligations. For instance, in case your common quarterly submission deadline, Finish of Interval Assertion (EOPS) deadline, and closing declaration fall in the identical month, and also you missed all three, you’d incur three penalty factors.
If in case you have a number of companies and are required to submit separate common ITSA updates for every one, you’ll have one factors tally that may cowl all your online business tasks underneath ITSA.
Do the penalty factors expire?
Every penalty level lasts for 2 years earlier than expiry. The lifetime of some extent begins the month after the month wherein it was incurred.
Nevertheless, in case you’re on the penalty threshold, your factors won’t expire.
You possibly can actively reset your factors by assembly two circumstances. You are able to do this for particular person factors or for a number of factors. If you’re on the factors threshold, that is the one manner you possibly can reset your factors again to zero.
To be able to reset your factors to zero, it’s essential to:
- Situation A: Meet all submission obligations for a interval of compliance dependent in your submission frequency – 24 months for annual, 12 months for quarterly, and 6 months for month-to-month submissions
- Situation B: Have submitted all submissions due inside the previous 24 months, whether or not they had been initially late or not
What are the brand new late cost penalties?
In addition to the brand new late submission penalty system, HMRC has additionally launched a brand new late funds penalty system, which is routinely utilized in case you fail to pay on time.
It operates on the next timeframes:
- As much as 15 days overdue: no penalty
- As much as 30 days overdue: 2% of the quantity on high of the cost due
- Day 31 overdue: 2% of what was due on day 15, plus 2% of what was due on day 30
- Greater than 31 days overdue: first penalty calculated at 2% of what was due on day 15 plus 2% of what was due on day 30 and a second penalty calculated at an annual fee of 4% of the excellent quantity, utilized day by day
As with different HMRC penalty techniques, variable rate of interest based mostly on the Financial institution of England base fee can be utilized.
Can I problem a penalty?
Sure, in case you suppose you could have an inexpensive excuse for lacking a deadline, you possibly can problem a penalty or level. You can also make your case by the inner HMRC overview course of. For those who don’t agree with the end result, you possibly can attraction to the First Tier Tax Tribunal.
What subsequent?
So long as you do every part you possibly can to satisfy your submission obligations and make funds on time, you don’t have anything to fret about from the brand new penalty techniques.
The perfect factor you are able to do to keep away from fines is to get your online business processes prepared for MTD. Discover out extra about how you can put together on Sage’s Making Tax Digital hub.
This text was written as a part of a paid-for content material marketing campaign with Sage
Learn extra: Methods to use MTD to get VAT proper
