Making Tax Digital regulations

The penalties for not complying with Making Tax Digital regulations

2 min read

HMRC is following a points-based penalty system for late submissions and payments under the new Making Tax Digital regulations. The model was agreed through a consultation process that finished in December 2017.

How does the points system work?

An individual or business receives one penalty point every time they fail to digitally submit accounts on time. When the individual or business reaches a certain threshold of points HMRC charges them a penalty. The points threshold to incur a penalty depends on the frequency of their submission obligations:

  • 2 point threshold for annual submissions
  • 4 point threshold for quarterly submissions
  • 5 point threshold for monthly submissions

Once the threshold has been reached, HMRC charges a penalty for every subsequent submission failure.

How long do penalty points last?

Penalty points are not permanent, they expire after a period of good compliance. HMRC has defined the periods of good compliance as:

  • 2 compliant submissions for annual submissions
  • 4 compliant submissions for quarterly submissions
  • 6 compliant submissions for monthly submissions

Can you appeal?

It’s possible to appeal against penalty points and actual penalties. HMRC anticipates a significant number of appeals so the process will probably be automated. To appeal successfully, you need to claim a reasonable excuse for failing to meet a filing obligation.

When does the points system start?

The new points-based system will start to apply for accounting periods commencing April 2020. This gives businesses and their agents time to understand and apply the new system (the ‘soft landing period’).

Who do penalties apply to?

HMRC will impose penalties for non-compliant individuals and businesses, rather than their tax agents. Check your tax agent is compliant with the Making Tax Digital regulations, or you could end up with a penalty. If your tax agent isn’t compliant, consider switching agents or prepare to submit your VAT yourself.

Where can I find out more information?

You can find all the detail of the consultation outcome Making Tax Digital: sanctions for late submission and late payment on the HMRC website.

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