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Removal Of The Soft Landing Penalty Waiver And New Penalty Regime For MTD VAT

The Chief Executive of HMRC, Jim Harra, has written to accountancy firms informing them that the soft landing penalty waiver period for Making Tax Digital (MTD) for VAT will come to an end in November 2022.

As mentioned in our previous article, MTD requires that all aspects of a business’ accounting records are linked digitally, with VAT return submissions also to be made through automatic links using approved software, rather than manually entered through the HMRC portal.

From 1 November 2022, all businesses will be expected to make submissions through the MTD System and HMRC will scrutinise how information is recorded and reviewed, not just for accuracy, but how it is collected and processed.

Scott Kennedy, Amber Accounting Manager based in our Forfar office, commented;

“With the removal of the soft landing penalty waiver and introduction of new penalty regime, it is important that businesses take time to review not only their records, but the systems which they use to ensure that they are digitally linked, and avoid costly penalties.”

The amount of penalty applied to businesses for each return filed incorrectly is dependent on their turnover:

  • £100 if turnover is below £100,000
  • £200 if turnover is between £100,000 and £5,600,000 inclusive
  • £300 if turnover is between £5,600,001 and £22,800,000 inclusive and
  • £400 if turnover is £22,800,001 or above.

Failure to keep records which comply with MTD can result in penalties of £5 to £15 per day of non-compliance.

As well as the removal of the soft landing penalty waiver period, HMRC are replacing their existing penalty system for late submission with a new points-based penalty regime that translates into fines, and a new late payment system. This will apply to all VAT customers for accounting periods beginning on or after 1 January 2023. Further guidance will be available on this in December 2022.

For more information or to discuss your circumstances, please get in touch with our MTD Taxperts by emailing [email protected] or calling one of our offices.

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