what are the making tax digital penalties

What are the Making Tax Digital Penalties?

What are the Making Tax Digital Penalties? Making Tax Digital (MTD) is the UK’s new system for digitising tax reporting and compliance. It is designed to improve efficiency, compliance, and accountability for the country’s tax system. As part of this, some many potential penalties and fines can lead to significant financial losses and repercussions for non-compliance. In this article, we will discuss the different penalties and points that are associated with making tax digital (MTD) in the UK, as well as how you can avoid them.


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What are the Making Tax Digital Penalties?

The UK’s “Making Tax Digital” (MTD) system is a new framework for digitising business taxes and improving compliance. It allows businesses to record, store, and submit tax data electronically. They are eliminating the need for paper forms and manual records. Under MTD, businesses are required to electronically record all taxable transactions and submit these records directly to HMRC.

Businesses that fail to comply with the MTD system risk facing penalties. Including fines and reduced Tax-Free Allowance (TFA) if they do not meet the reporting deadlines. As a part of the MTD system, businesses can use digital record-keeping systems to accurately collect and report tax data. This reduces the risk of mistakes, saves time and money, and improves administrative efficiency.

By moving to electronic reporting and record-keeping, businesses can also increase their visibility and control over their tax liability. Making it easier to monitor and address any potential issues. Furthermore, the electronic submission of tax data provides HMRC with faster and more accurate access to taxpayer information. Allowing them to identify and rectify any issues or anomalies in a timely and effective manner.


How to Avoid MTD for VAT Penalties?

To avoid MTD for VAT penalties in the UK:

  1. Understand what the Making Tax Digital for VAT (MTD-VAT) system is and what it involves.
  2. Make sure your business qualifies for MTD-VAT. This means ensuring it has an annual taxable turnover of more than a certain limit for each of the past two consecutive fiscal periods.
  3. Prepare in advance for HMRC’s MTD-VAT deadline.
  4. Register for the MTD-VAT scheme. Your business must register online through HMRC’s service.
  5. Connect a software solution to MTD. Your business must connect a certified Digital Software Solution (DSS) to HMRC’s MTD service via the MTD Connect Service.
  6. Keep track of your business transactions in a compliant way.
  7. File your VAT returns online before the MTD-VAT deadline. You must submit your VAT returns on time to avoid any potential penalties or fines.
  8. Update and maintain the compliance status of your business.
  9. Stay up to date with any changes to the legal and regulatory environment surrounding MTD-VAT.
    Seek professional advice when needed to ensure your business complies.


How to Avoid MTD for ITSA Penalties?

The Making Tax Digital for Income Tax and Self Assessment (MTD-ITSA) is a new system by HMRC to make it easier. As well as more efficient in reporting and paying income tax and self-assessment taxes. Such as Stamp Duty Land Tax (SDLT). Those who fall under the scope of MTD-ITSA risk non-compliance penalties if they fail to meet the relevant reporting thresholds and deadlines.

To avoid MTD-ITSA penalties in the UK:

  1. Understand the rules and requirements for MTD-ITSA.
  2. Ensure your business qualifies for MTD-ITSA.
  3. Prepare in advance to meet the requirements. This includes making sure you have the necessary systems and processes ready before the start of the reporting period.
  4. Register for the service. Your business will need to register with HMRC’s MTD service and connect your digital software solution for income tax and self-assessment taxes, such as HMRC’s Business Tax Portal.
  5. Track your income tax filings and submissions.
  6. File on time and update your compliance status.
  7. Avoid delaying any tax filings or payments.
  8. Be aware of any changes that may apply to your business and take appropriate action when necessary.
  9. Contact HMRC or a qualified professional for advice if you have any questions or concerns.

Lastly, keep in mind that the laws and regulations surrounding MTD-ITSA are evolving. So it’s important to stay up-to-date and remain vigilant. Following these tips can help you avoid potential penalties and keep your business compliant with the latest UK tax reporting requirements.


Can I Appeal Against the Points or Penalties?

It is possible to appeal against penalties and points issued in this regard. In general, the process is as follows:

  1. To appeal a penalty or point, you will need to submit an appeal claim using the Online Appeal Service.
  2. HMRC will review your appeal and make a decision. You will then be notified if your appeal was upheld or not.
  3. If your appeal is unsuccessful, you have the option of taking the appeal to an independent tribunal for a final decision.

If your appeal is ruled against, you can request a review of the decision by writing to the Adjudicator’s Office.
If you are still not satisfied with the decision, you may submit another appeal to an independent tribunal within 28 days of receiving the Adjudicator’s decision.

The tribunal will then review the evidence and make a final decision. However, it’s important to note that this process can be lengthy and costly. So it’s best to seek professional advice if you feel you have legitimate grounds for an appeal.



In conclusion of what are the Making Tax Digital Penalties, making tax digital (MTD) is a key part of the UK’s tax system. It allows businesses to file taxes electronically, eliminating the need for paper forms and manual records. There are specific timelines for filing and adhering to the MTD requirements that must be honoured to avoid potential penalties and fines.

Businesses need to keep up-to-date with regulations, comply with all filing deadlines, and be aware of tax legislation to ensure a smooth, compliant process. By taking these steps, businesses can avoid MTD penalties and avoid unnecessary costs and headaches.


Reach out to our expert professionals to get your queries answered instantly. We will love to come up with the best possible solutions to your queries about the Making Tax Digital Penalties.


Disclaimer: The information about Making Tax Digital Penalties is provided in this article including text and graphics. It does not intend to disregard any of the professional advice.

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