The UK Government has published its draft Finance Bill 2018-19 which outlines a two-tier penalty system for the nation’s new Making Tax Digital (MTD) regime.
The proposed penalty regime for businesses and individuals will be enforced within 15 days of an overdue tax payment. However, the bill indicates there will be an initial grace period for late filers still getting to grips with the new digital system.
Despite a string of concerns raised with the new two-tier penalty system during its MTD consultations, citing its unnecessarily complex nature, the Government insists the regime will go ahead regardless.
MTD reporting will begin for businesses from April 2019 when they will be required to file their VAT returns digitally. However, requirements to submit capital gains tax and corporation tax returns digitally have been postponed until at least 2020-21.
HM Revenue & Customs (HMRC) has confirmed that fines for inability to maintain digital records will come into force from April 2019 too, but there will be an initial grace period for those whose financial data is overdue. Fines for the late filing of digital returns will be imposed the following year from April 2020.
How will the Making Tax Digital penalty system work?
MTD penalties will be calculated on tax still owed after 15 days from its original payment date.
If a payment is made or a Time to Pay (TTP) agreement has been sought between 16 and 30 days after the original due date, half a penalty fine will be charged.
Those who fail to pay overdue tax within 30 days of the original due date will be charged a full penalty fine, along with an additional daily penalty which will be accrued until payment is made or a TTP agreement has been sought.
Confused by Making Tax Digital?
Making Tax Digital is designed to bring the UK tax system into the 21st century by providing businesses and individuals with a streamlined, digital system to maintain their tax records and provide accurate information to HMRC.
For a comprehensive run-down of MTD and its impact on businesses and self-employed individuals, make sure you download our free guide.
Your local TaxAssist Accountant can work with you to prepare your business for MTD. As small business owners ourselves, we understand what it takes to manage your business records digitally.