Making Tax Digital (MTD)
New points based penalty model

HMRC have been exploring changes to the penalty system for late submission failures under Making Tax Digital (MTD). They have now decided to adopt a points based model with the draft legislation expected in summer 2018.

This will see the introduction of a system where late submission of a return or of the filing obligations under MTD attract points.

A penalty will be charged for every failure to provide a submission on time once points have been accumulated up to a certain threshold.

Penalty thresholds
The penalty thresholds will be:

Submission frequency penalty threshold
Annual 2 points
Quarterly 4 points
Monthly 5 points

Good compliance points reset
After a period of good compliance, the government is ‘minded’ to use the following periods of good compliance before resetting penalty points back to zero.

Submission frequency good compliance period
Annual 2 submissions
Quarterly 4 submissions
Monthly 5 submissions

Both the accumulation of points and any subsequent penalties will be fully appealable.

When will this start?
April 2019 sees the start of mandatory reporting of VAT obligations for all VAT registered businesses with a turnover in excess of £85,000. A 12 month soft landing period will follow, before the new points system commences in 2020.
This will then be rolled out across the other taxes.

What will the penalties be?
The actual penalty amount has yet to be announced.
Watch this space, once we know more details we’ll be sure to share them.