HMRC announces details of MTD penalties

HMRC has published details of the penalties system for late submissions and payments under Making Tax Digital, confirming it plans to implement a points-based system.

As a result taxpayers will receive a point every time they fail to submit on time. A penalty will be charged at a certain threshold, which will be dependent on the frequency of their submission obligations. After the threshold has been reached, a penalty will be charged for every subsequent submission failure.

The penalty thresholds are subject to confirmation, but it is anticipated as follow: 2 points for annual submissions, 4 points for quarterly submissions and 5 points for monthly submissions.

It was confirmed that penalty points will have a shelf-life and would expire after a period of good compliance.

To incentivise individuals for good behaviour, HMRC have said they will make penalty points and actual penalties appealable, and give taxpayers the option to claim a reasonable excuse for failing to meet a filing obligation.

Draft legislation is expected in summer 2018, after which it is anticipated that the system will be implemented for VAT in 2020, giving taxpayers a year to become familiar with the system following the first MTD intake in April 2019.