HMRC has announced it will not fine the 120,000 UK businesses who missed the Making Tax Digital (MTD) deadline.
The tax watchdog said it believes the companies who missed the MTD deadline may have been focused on preparations for leaving the European Union.
Under normal circumstances, a business would have received a fine of at least £100 for not submitting a VAT return by 7 August. Cumulatively, this would have equalled tens of millions of pounds for the revenue.
MTD, introduced in April this year, requires businesses to file their VAT returns via an online software. Many of the 1.2 million businesses affected by the MTD rules were required to keep their records digitally, sign-up to the service and submit their first quarterly VAT return to HMRC direct from software by 7 August.
Nearly a million businesses registered for MTD before the August deadline and some 900,000 VAT returns were submitted successfully through the service.
The 120,000 businesses who missed this deadline will be sent a letter encouraging their business to join the new service.
MTD could save taxpayers £3 billion
HMRC expects MTD to reduce tax lost due to errors, thanks to the improved accuracy that digital records provide. The latest tax gap figures show avoidable mistakes cost taxpayers more than £9.9bn last year – £3bn of which was attributable to VAT alone.
Deputy CEO and second permanent secretary of HMRC, Jim Harra, said: “Our ambition is to help businesses moving to MTD to get it right, not to penalise them. HMRC’s decision not to enforce penalties will help businesses transition to MTD without fear of getting it wrong.”