Making Tax Digital: avoiding VAT penalties

October 26, 2022

Making Tax Digital: avoiding VAT penalties


Making Tax Digital: avoiding VAT penalties

From 1 November 2022, VAT-registered businesses that do not yet comply with the Making Tax Digital (MTD) requirements will face penalties. Businesses should also be aware of the new VAT penalty regime being introduced from 1 January 2023.

Although VAT-registered business should already be submitting their VAT returns using MTD compatible software, they have until now been able to continue using their VAT online account without incurring a penalty. However, for those businesses filing their VAT returns monthly or quarterly, this option will no longer be available, making it impossible to file other than by using MTD software.

HMRC has said that a business filing annual VAT returns can continue to use their VAT online account until 15 May 2023.

Around 10% of businesses filing returns using the correct MTD software have not yet signed up for MTD with HMRC but will need to do so to avoid a penalty.


The maximum penalty for filing a VAT return using the incorrect method is £400, but only £100 if a business’s turnover is below £100,000.

Any business that is not signed up for MTD will also be at risk of incurring penalties under the new regime applicable for VAT return periods beginning on or after 1 January 2023:

  • Interest, currently set at 4.75%, will be charged from the due date.
  • Late payment penalties will kick in, initially at 2% of the outstanding VAT, once payment is more than 15 days late.
  • Late submission penalties will be charged under a points-based system, with an initial £200 penalty charged if four quarterly returns are late.

Having a reasonable excuse might provide a potential escape route, but failure to use MTD software is hardly likely to count.

HMRC’s guidance on how to avoid penalties for MTD for VAT can be found here.

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PLEASE NOTE: By the very nature of this type of information the details of tax law might have changed since they were published, so contact your Barnes Roffe partner before acting on any matter contained in these documents.