MAKING TAX DIGITAL: Part 2: HM Revenue & Customs (HMRC) Penalties and problem areas
Making Tax Digital is being implemented requiring all compulsory VAT registered businesses to file their VAT Returns using specific software linking directly to HMRC records from 1 April 2019.
In this update we will look at the penalties that HMRC will charge if you do not comply with the new regime, the problem areas the new system will cause some businesses and some solutions. HMRC have announced they will allow an introductory period for the MTD systems to be fully implemented.
Currently VAT has some of the harshest penalties with surcharges applying after two defaults and the rate increasing for further defaults. HMRC is to introduce a new penalty regime from April 2020, which should make the penalties fairer. Although the first period under making tax digital should not be affected by the new regime it will come in when the initial introductory tolerance period has finished. There are two types of penalty, for late submission of returns and for late payment of the taxes.
Late submission penalties:
These penalties use a points system and will apply for all taxes not just VAT. For each late submission you will accrue a point. For quarterly VAT returns if you accumulate 4 penalty points you will be caught by the penalty provisions. It then requires a full 12 months of on-time submissions to clear the accrued points. The new penalty rates have not yet been announced.
Late payment will give rise to a penalty interest rate. There is some mitigation of this if arrangements have been made with the first month of the original due date. Thereafter an additional rate of penalty interest will apply. The rate of penalty has not been disclosed however a 10% rate has been used in examples within HMRC consultation documents. Currently interest on late paid tax is only 3.25%.
Where can we help:
There are a large number of software suppliers who have been approved by HM Revenue & Customs that their system will accept MTD submissions. We can assist you to choose the most appropriate software for your circumstances.
If you would like to know more about the specific changes and how they will affect you and your business we would like to invite you to join us for a seminar which will cover not only the changes but also give you a chance to discuss your specific issues with some of our specialists.