MTD for VAT Penalties Are Here: How to Protect Clients and Avoid £200+ Penalties

From 1 January 2023 HMRC moved to a points-based penalty system for late VAT returns and the same system will apply to making tax digital for income tax after an initial period of grace: each late VAT return leads to a penalty point, points remain on record for a defined period, and accumulating the relevant threshold triggers a fixed penalty. Because further late returns while at the threshold attract additional fixed penalties, a single lapse can be the start of a costly run of fines. Make sure clients understand this simple fact: missed deadlines now carry immediate, repeatable financial consequences.

How this plays out in practice

Different filing frequencies have different thresholds (for example, quarterly filers reach the threshold after a set number of missed returns). Points only expire once a business achieves a run of on-time returns or the statutory expiry period passes; if a client reaches the threshold, they must sustain compliance for a period to clear points. HMRC’s guidance sets out thresholds, expiry rules and how appeals or “reasonable excuse” arguments are handled.

A four-layer defence to protect clients

1. Technical assurance: confirm each client’s software is MTD-compatible, test agent linking and verify last successful submission date.
2. Process control: set internal cut-offs (for example, finish reconciliations five working days before the VAT due date), and enforce them through your team.
3. Fail-safe escalation: if any client is not ready by the internal cut-off, trigger a partner review and a contingency submission route. Maintain a written playbook.
4. Client engagement: educate clients about the personal cost of late filings, use automated reminders and provide simple options to make record capture easier (bank feeds, receipt scanning).

If a client already has points

Treat any penalty point as an operational red flag. Review why the deadline was missed, implement immediate remedial measures, and where appropriate help the client submit an explanation to HMRC (appeals on the basis of a reasonable excuse are possible but never guaranteed). The priority is to re-establish on-time filing so points can expire.

Final takeaway

The VAT points system makes prevention the only practical strategy. Confirm software and agent connectivity, tighten calendars and SLAs, and treat a single point as reason to escalate and fix processes. With a small amount of organisation you can protect clients from £200 fines and preserve your firm’s reputation.

Practitioners need accurate, trustworthy guidance to keep their clients compliant. Tolley+ gives you the confidence to navigate MTD with expert-written content, practical steps, and AI-powered search that brings the right answers instantly