The existing penalty system is due to change from 2020. Read on to find out more about what you need to do to avoid penalties now or in the future.
The existing penalty regime will apply for the first year of mandatory MTD submissions from April 2019 but is due to change to a points based one from 2020. The current penalty system is summarised in the table below. A default is issued where a VAT return or VAT payment is late. More than one default can trigger a surcharge.
| Number of defaults during rolling 12 month period | Surcharge where annual turnover < £150k | Surcharge where annual turnover >= £150k |
| 1 | No surcharge – help letter issued | No surcharge. Business enters a surcharge period. |
| 2 | No surcharge. Business enters a surcharge period | 2% (no surcharge if charge is under £400) |
| 3 | 2% of VAT (no surcharge if charge is under £400) | 5% (no surcharge if charge is under £400) |
| 4 | 5% of VAT (no surcharge if charge is under £400) | Greater of 10% of VAT or £30 |
| 5 | Greater of 10% of VAT or £30 | Greater of 15% of VAT or £30 |
| 6 | Greater of 15% of VAT or £30 | Greater of 15% of VAT or £30 |
When will the new MTD penalties apply from?
The existing model as above, will remain in place during the MTD ‘soft landing’ period which will run from 1st April 2019. It may be prudent to keep additional records of any MTD submissions attempted. These can be useful if there are technical problems experienced in submissions through API.
From April 2020 HMRC intend to introduce a new points based system for late filing and late payment of VAT. The legislation is included in the draft 2018/19 Finance Bill, which is expected to be passed before April 2019. This points system of penalties is due to be rolled out for all taxes to ensure consistency.
How will the points system work?
A taxpayer will automatically receive a penalty point where the submission is late and the points will cumulate for subsequent late filings. Once the threshold of points (whatever this may be) is reached HMRC will charge a penalty.
Once the taxpayer has reached the threshold then every subsequent late/missed filing will incur another penalty. To reach a ‘clean slate’ position, the taxpayer must have submitted all returns required for the previous 24 months and 6 successive timely submissions.
Where the penalty threshold isn’t reached, the points accrued will expire in the order they arose, see table below;
| VAT Period | Penalty Threshold | Good Compliance Period | Points Lifetime | Notification Deadline |
| Annual | 2 points | 2 submissions | 24 months | 12 months |
| Quarterly | 4 points | 4 submissions | 24 months | 3 months |
| Monthly | 5 points | 6 submissions | 24 months | 1 months |
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