MTD penalties start in November 2022 - here is what you need to know

If you have not yet signed up to the Making Tax Digital (MTD) initiative, then, starting 1 November 2022, you are likely to incur a penalty. Businesses that collect value-added tax are now mandated by law to use MTD-compatible software to track and report their VAT returns.

In a recent statement, HMRC CEO Jim Harra wrote: “I’m writing to let you know that from Tuesday 1 November 2022, your clients will no longer be able to use their existing VAT online account to file their quarterly or monthly VAT returns.

“If your clients do not sign up for MTD and file their VAT returns through MTD-compatible software, they may have to pay a penalty. The best way for businesses to avoid penalties is to start using MTD now.”

Not submitting your return digitally can result in an up-to £400 Filing Through the Incorrect Channel (FTIC) fine from HMRC. The FTIC penalty is an extension of the ‘Carter’ penalty, which was established in 2012 alongside mandatory online filing for VAT to encourage the transition from paper to digital filing.

The amount you will be charged for not filing your returns digitally depends on the amount of revenue your business makes. If your annual revenue is less than £100,000, you’ll only have to pay £100. If your annual revenue is between £100,000 and £5,600,000, inclusive, you’ll pay £200. If annual revenue is between £5,600,001 and £22,800,000, inclusive, the fee is £300; if it’s over that amount, the fee is £400.

However, any person who is not required to file online VAT returns is also exempt from the above. That remains true even if they or their company are forced into insolvency.

If you are not yet taking part in MTD, or you have any questions about the new regime, you should contact JW Hinks on 0121 456 0190 immediately. Our professional team of tax experts can help you ensure you are doing everything you need to in order to avoid falling foul of regulators and incurring fines.