The new Making Tax Digital (MTD) regime launched on 1st April 2019. HMRC aims to digitalise taxation processes, with the scheme expanding to cover more transactions in the coming months and years. At first, the regime impacts almost all VAT registered businesses and VAT returns, making millions of UK businesses liable to go through with MTD registration. However, the new scheme has had its hiccups and it’s estimated that over 1 million UK businesses didn’t register on time. This has forced HMRC to clarify its approach to penalties.
What is the MTD VAT scheme all about?
The MTD scheme involves businesses that are VAT liable. In the UK, every business with a turnover of £85,000 or above is required to register for VAT. The majority of VAT liable businesses must now also register to use the MTD regime. From the start, certain exclusions have applied and a handful of businesses have their MTD registration deadline later this year.
But for many of them, the scheme and its requirements rolled into play this April. Under the MTD rules, UK businesses have to file quarterly VAT returns via MTD compliant software. Prior to filing the returns, businesses must be signed up to the system and the guidelines state that your MTD registration must be completed at least eight working days before the first MTD VAT return submission date.
An exception applies to businesses using Direct Debit to pay VAT. In these instances, you cannot sign up in the seven business days leading up to the submission date or in the five working days after the previous VAT is due.
The first quarterly VAT submissions are soon due and therefore, the deadline for MTD registration was 27th July 2019. Those businesses that didn’t make the arrangements on time would now have needed to set up their MTD account within three business days prior to the 7th August 2019, which is the deadline for filing the first quarterly VAT through the new system.
What has HMRC ruled regarding penalties?
On 1st August 2019, HMRC’s MTD for Business Customer Readiness & External Stakeholder Team sent an e-mail to tax agents clarifying its approach to penalties. According to the statement, businesses that missed the registration deadline for MTD will not be penalised this time around.
This is welcomed news for many, considering how many businesses have not registered on time – or they have failed to receive proper confirmation of a successful MTD registration. Indeed, HMRC has said the system should issue confirmation within 72 hours of registration but the delay has been longer in some instances. Furthermore, there have been hiccups because certain MTD systems have not sent an automatic confirmation of registration at any point.
It’s worth noting that HMRC said they would be issuing a letter to businesses that failed to register and file through the MTD portal. The letter will request businesses to take action and resolve the situation as soon as possible. But they should rest easy knowing there won’t be any late-filing penalties.
Businesses must still file VAT the ‘old way’
While businesses won’t be penalised for not being able to file VAT through the new portal, it doesn’t mean they can ignore filing altogether. The statement made it clear that businesses that didn’t register on-time for the MTD software must still complete their VAT return using the old portal. Failure to do so will incur late payment penalties.
If you haven’t signed up with the MTD scheme, then head over to HMRC’s VAT online account. The account will allow you to:
- Set up a Direct Debit payment
- File your taxes
- Make changes to your business information
- View past and outstanding payments
For those businesses unsure whether they are registered, it’s best to contact HMRC or your tax advisor to make sure you’re using the correct system. If still not certain if registered, you should consider using the VAT online account to file your taxes this time around just to avoid penalties.
Businesses must go through with MTD registration
If your business hasn’t yet made arrangements to sort out MTD registration, it’s time to get it done. HMRC recommends businesses make their MTD registration as soon as their previous Direct Debit payment has been collected.
You can register via HMRC’s website, which has a great step-by-step guide to help you with the process. You should receive confirmation within 72 hours but do note that it has taken longer in some instances. However, the sooner you get the registration sorted the easier the next VAT deadline will be.
It’s crucial to be aware that you’ll need compatible software to make future payments. The whole MTD system is built on the premise of pulling information from HMRC’s systems digitally and making it easier for businesses to use it accordingly; directly on their accounting software. You can search for compatible software online and your tax agents can help you with this. Our previous blog post on choosing accounting software will also come in handy.
Get help with MTD registration and VAT filing
There are many online tools to help you get started with MTD. HMRC website has important information and your accounting software supplier should be able to answer your concerns. We’ve also written a short guide to MTD registration, which you can find here.
Although the new HMRC guidance takes some pressure off businesses, sorting out the MTD registration should be a priority for all. If you want to understand the regime in more detail, don’t hesitate to contact our experts at Devonshire Green. Together we can ensure your business is ready for digital accounting!