Penalties Introduced to Making Tax Digital

HMRC have introduced a new points-based penalty system under Making Tax Digital.

Earlier on this year, HMRC began a consultation which explored changes to the penalty system for late submissions under MTD. It has now been decided to introduce a points-based system, with draft legislation expected in summer 2018. This model will introduce a system where a late submission or filing obligation under MTD will attract a point.

Once points have been accumulated up to a certain threshold, a penalty will be charged for every subsequent failure to provide a submission on time. This will work very similarly to accumulating driving offence points, with the total points resetting to zero after a period of good compliance.

Points will be accumulated per business, so people with multiple businesses will see points allocated to each single business, rather than added to a cumulative total for all of the businesses.

The first tax for which the new model will be implemented is likely to be for VAT reporting under MTD. Mandatory VAT reporting for all VAT registered businesses with a turnover in excess of £85,000 will be implemented in April 2019. A 12 month soft landing period will follow, before the new points system is introduced in 2020.

The government intends to apply the same penalty system to other taxes where a regular submission is required, so the £100 penalty for the late submission for a self-assessment return will go at ‘an appropriate point in the future after an appropriate notice period.’

The penalty thresholds are going to be as follows:


Submission Frequency                                   Penalty Threshold

Annual                                                                  2 points

Quarterly                                                             4 points

Monthly                                                               5 points

The following periods of good compliance will allow the penalty points to be reset back to zero;

Submission Frequency                                   Good Compliance Period

Annual                                                                  2 submissions

Quarterly                                                             4 submissions

Monthly                                                               5 submissions

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

The official penalty amount is yet to be announced, but as soon as we are aware of this we will create a post.