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MTD for VAT penalties

The introduction of Making Tax Digital (MTD) for VAT has prompted discussion about the risk of penalties where a problem with introducing new processes and systems results in late filing, late payment or other breach of the regulations. The MTD for VAT notice introduces a ‘soft landing’ on penalties for the first 12 months, but only in respect of digital links for any transfer or exchange of data between software programs, products or applications used as functional compatible software.

There are a number of different types of VAT surcharges and penalties that need to be considered.

Default surcharge will operate as currently until at least April 2021 when it is expected to be replaced by points based late submission penalties and late payment penalties (for further details see the consultation documents and ICAEW representations). There will be no soft landing on default surcharge. Draft legislation for the new penalty regime was published in 2018 and the measure was expected to be included in Finance Act 2019 but has been deferred to a future Finance Bill.