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 methods work, once they come into power, and what your obligations are.
When do the HMRC penalty methods come into power?
The brand new penalty methods will apply to any VAT submissions for tax durations beginning on or after 1 January 2023.
They have been initially scheduled to be launched alongside the complete rollout of MTD for VAT this April, however have been pushed again by 9 months because of deficiencies in HMRC’s IT system.
The brand new methods can even apply to Revenue Tax and Self Evaluation (ITSA) and can be launched on 6 April 2024 for ITSA clients who’re mandated for MTD and 6 April 2025 for all different ITSA clients.
What’s the new HMRC penalty system?
The brand new penalties for late submission can be utilized to you in case you fail to fulfill your obligations to make submissions to HMRC on time.
As a substitute of receiving an computerized penalty from HMRC for each late submission, you’ll incur plenty 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 if you attain a sure threshold.
The thresholds, that are decided by how typically 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.
Usually, to make compliance simpler, even you probably have two or extra failures regarding the identical submission obligation in the identical month, you’ll solely incur a single level.
Nonetheless, 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 remaining 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 enterprise obligations underneath ITSA.
Do the penalty factors expire?
Every penalty level lasts for 2 years earlier than expiry. The lifetime of a degree begins the month after the month by which it was incurred.
Nonetheless, in case you’re on the penalty threshold, your factors won’t expire.
You possibly can actively reset your factors by assembly two situations. You are able to do this for particular person factors or for a number of factors. In case you are on the factors threshold, that is the one manner you may 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 throughout the previous 24 months, whether or not they have been initially late or not
What are the brand new late fee penalties?
In addition to the brand new late submission penalty system, HMRC has additionally launched a brand new late funds penalty system, which is mechanically 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 fee 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 price of 4% of the excellent quantity, utilized every day
As with different HMRC penalty methods, variable rate of interest based mostly on the Financial institution of England base price can be utilized.
Can I problem a penalty?
Sure, in case you assume you’ve got an affordable excuse for lacking a deadline, you may problem a penalty or level. You may make your case via the inner HMRC assessment course of. When you don’t agree with the result, you may attraction to the First Tier Tax Tribunal.
What subsequent?
So long as you do all the pieces you may to fulfill your submission obligations and make funds on time, you don’t have anything to fret about from the brand new penalty methods.
The perfect factor you are able to do to keep away from fines is to get your enterprise 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: Learn how to use MTD to get VAT proper
