MTD (Making Tax Digital), mentioned many times in our previous articles, has been updated again recently.

This will affect all businesses paying VAT.

We recently received a letter from HMRC and delivered important information to our customers as soon as possible.

From 1 November 2022, all customers filing quarterly or monthly VAT returns online will not be able to continue filing using the current form.

Advancement of MTD

According to the latest news, HMRC will remove the soft landing penalty exemption for the Making Tax Digital (MTD).

In its place are simple and straightforward fines, and businesses have been urged to quickly file returns using online accounts.

  • From 1 November 2022, all customers filing quarterly or monthly returns using existing VAT online accounts will be stopped.
  • Businesses filing annual VAT returns can also continue to use online accounts until May 15, 2023.

“By law, VAT-registered businesses must now register with the MTD and use MTD-compatible software to keep VAT records and file returns.”

making tax digital
making tax digital

MTD Penalty Details

Penalties may apply if you have not registered with MTD and submitted your VAT return through MTD-compatible software.

Penalties initiated by HMRC will come into effect from November. Any business that does not use the MTD for a digital VAT reporting system will be penalized.

In addition, HMRC will impose fines of up to £400 on businesses submitting non-electronic returns.

MTD Penalty Mechanism

  • Breach: Any breach of MTD rules or omission to declare.
  • Surcharge: The second time a taxpayer makes a mistake will enter a 12-month surcharge period. The surcharge is calculated as a percentage of the VAT payable on the last filing.
  • Fault reset: If the business has other errors within 12 months, the accumulated points system will update the fault and reset the surcharge.
  • Default Accumulation: Accumulated points will be converted into and combined into a new surcharge percentage, which can be extended from 2% to 15%.
making tax digital

What's next?


Any business paying VAT must start registering with the MTD and select MTD-compatible software to record and file returns.

Businesses filing quarterly or monthly VAT returns must complete these steps in order to file their returns after November 1.

Unless, your business has been exempted from filing VAT returns online, or the business is subject to bankruptcy proceedings, they will automatically be exempt.

You can check whether your business can apply for an exemption on GOV.‌‌‌UK, but any grounds will be carefully considered by HMRC and the outcome will be given.

If you have no clue about MTD, you can also directly consult our professional accounting team to complete this digital transformation as quickly as possible.