MTD Penalties: New MTD Filing Penalties Explained

From this year, new MTD penalties specific to filing will come into play. Filing VAT returns using making tax digital (MTD)-compatible software will be compulsory. This will apply to all VAT registered traders for periods beginning on or after 1 April 2022. This is unless HMRC agrees that the taxpayer is exempt.

Sole traders will also have to file quarterly and annual income tax reports using MTD software from 6 April 2024. Additionally, most partnerships will join the MTD regime from 2025.

Our team at Newnham & Son is dedicated to providing clients with the most up-to-date information regarding changes in UK tax. We offer a wealth of both personal and business tax services. To find out more about our offerings, visit our services page.

Points-Based MTD Penalties

To encourage taxpayers to file their MTD reports on time, the Government is introducing a new system of points-based penalties for late filing.

One point is awarded for each late filing. When you reach a certain points threshold a £200 penalty will be imposed. The threshold depends on the submission frequency of the return. Here is a breakdown:

Submission Frequency Penalty Threshold Period of Compliance
Annual 2 points 24 months
Quarterly 4 points 12 months
Monthly 5 points 6 months

points based mtd penalties

Quarterly Returns on MTD Penalties

For quarterly returns, the fourth point triggers the £200 penalty. Every late submission imposed after that penalty will trigger another £200 penalty. However, additional penalties will not add further points to the points slate.

Each point will expire after two years starting from the month after the month in which the late filing occurred.

The taxpayer can wipe the point slate if they achieve both:

  • Zero late submissions for a period of compliance (see table); and
  • All returns for the previous 24 months have been filed, even if filed late.

Appeals can be lodged against all points and penalties levied by HMRC.

Need Help Navigating MTD Penalties?

At Newnham & Son, we have extensive experience navigating through the complex realm of tax and accounting. If you need support during the transition towards MTD, we’d be happy to help! Contact us today to find out more about how we can help you and your business.

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