The ATT has suggested that HMRC should consider modernising its approach to penalties, to encourage compliance with tax rules rather than penalise those who unintentionally get things wrong.
Making tax digital for VAT (MTD for VAT) requires VAT-registered businesses to file returns using compatible software and to keep digital records. Failure to do either attracts penalties. Among its concerns, the ATT has noted the following:
HMRC is not publicising the MTD for VAT penalties widely enough, meaning penalties for inadvertent compliance failures could present an unexpected shock for businesses; and
the penalties for MTD for VAT failures are not new but are based on the existing penalties regime from the pre-digital era. ‘A new digital system needs new rules which reflect just how different the requirements are’, says the ATT.
Senga Prior, Chair of the ATT’s Technical Steering Group, commented: ‘New penalty regimes for late filing and late payment will be introduced for VAT from 1 January 2023. These are very sensibly specifically designed to encourage taxpayers to meet their obligations and to contact HMRC as soon as possible where they are struggling to pay. By contrast, these older penalties used for MTD for VAT fail to recognise that carrots of encouragement are more likely to produce ongoing compliance with tax obligations than financial sticks.
‘We would encourage the Government to take a fresh look at these older style MTD penalties and consider how they can be brought into the 21st century, with a greater focus on helping, and not punishing, taxpayers.’
The ATT has suggested that HMRC should consider modernising its approach to penalties, to encourage compliance with tax rules rather than penalise those who unintentionally get things wrong.
Making tax digital for VAT (MTD for VAT) requires VAT-registered businesses to file returns using compatible software and to keep digital records. Failure to do either attracts penalties. Among its concerns, the ATT has noted the following:
HMRC is not publicising the MTD for VAT penalties widely enough, meaning penalties for inadvertent compliance failures could present an unexpected shock for businesses; and
the penalties for MTD for VAT failures are not new but are based on the existing penalties regime from the pre-digital era. ‘A new digital system needs new rules which reflect just how different the requirements are’, says the ATT.
Senga Prior, Chair of the ATT’s Technical Steering Group, commented: ‘New penalty regimes for late filing and late payment will be introduced for VAT from 1 January 2023. These are very sensibly specifically designed to encourage taxpayers to meet their obligations and to contact HMRC as soon as possible where they are struggling to pay. By contrast, these older penalties used for MTD for VAT fail to recognise that carrots of encouragement are more likely to produce ongoing compliance with tax obligations than financial sticks.
‘We would encourage the Government to take a fresh look at these older style MTD penalties and consider how they can be brought into the 21st century, with a greater focus on helping, and not punishing, taxpayers.’
