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HM Revenue and Customs have now confirmed the penalty system that will be brought in for non-compliance with making tax digital. There has been much concern that the system is too complicated but HMRC appear to feel confident enough in the system to go ahead.

From April 2019 businesses who are required to be registered for VAT will also become required to keep digital records. Penalties for not keeping digital records will begin immediately on inception of making tax digital, although how this will be verified may remain to be seen.

The initial stage of making tax digital is the requirement to file VAT returns through a digital programme, for example Xero or Sage. The only change being that you will not be able to log into the Government Gateway site to submit your VAT return. There are currently penalties for not submitting VAT returns so in principle this is nothing new.

The penalties for not making your making tax digital submissions on time will be based on a points system. Each time a submission is a late a point will be allocated and once a total number of points is reached, the example being used by HMRC is four points, a penalty will be issued. The points will carry forward until a certain number of deadlines have been met, which will then wipe the point from the history.

The points systems will be separate for each tax, although this may be subject to change before it is implemented. There is planned to be a year from Making Tax Digital becoming compulsory before the penalties begin, although like much of this legislation it is subject to change.

The new penalty regime for not paying your VAT on time (the date of which is not due to change) is not expected to start until 2020, with the current system continuing until then. Penalties will be based on a scale of how late VAT is paid after it is due and is equally planned to apply to corporation tax when it is brought in to the Making Tax Digital regime. There will be an additional late payment interest charge calculated, based on how late the payment is made after the deadline.