Making Tax Digital (MTD) started becoming mandatory from 1 April 2019, meaning that the vast majority of VAT-registered businesses that are on a quarterly stagger should have submitted their first MTD VAT returns by now. I say ‘should’ since an HMRC announcement on 1 August allowed the first return due under MTD to actually be submitted using the “old” method. This appears to be a common-sense decision, after realising that there were many business that had still not completed the MTD registration process.
Updated statistics suggest that over 1.2m businesses have now registered for MTD for VAT, with over 1.7m MTD VAT returns submitted.
Certain businesses were also given a deferral for MTD registration until 1 October, meaning that most of these have yet to have the need to file a VAT return under the regime. These included VAT Groups, Public Sector/Local Authorities, Not-for-Profit (including some Charities), Trusts and businesses registered under the Annual Accounting Scheme.
Any businesses registered for VAT voluntarily, with taxable turnover under the registration threshold of £85,000 remain exempt from the requirement at present, though clearly this is a possibility in the future.
What is MTD? A Recap
MTD is part of HMRC’s plan to become ‘one of the most digitally advanced tax administrations in the world’. It is intended to make the tax system more effective and efficient, and to make it easier for businesses and individuals to get their tax right.
Businesses included in MTD for VAT have two main responsibilities: to keep digital records and to file VAT returns using compatible software approved by HMRC. This applies to VAT-registered businesses with a taxable turnover of more than £85,000.
Compatible software splits into two camps: the first are HMRC approved bookkeeping and accounts programs that will carry out the MTD submissions direct; the second are programs that are termed “bridging software”. These cater for those businesses either using spreadsheets to maintain their accounting records or who use an accounts/ bookkeeping package that is not capable of filing an MTD return. There are several reasons why this might be, for example a bespoke package, one that is designed for a foreign country or often the more likely one that is a legacy (i.e. old) version.
What to do if you haven’t signed up
Now we are into December, strictly speaking all businesses required to comply with MTD legislation should have registered. Even those who have benefitted from the deferral, ought to be into the process of registering if they haven’t already done so.
HMRC has confirmed it will be taking what it calls a “light-touch approach” to MTD compliance during the first year of implementation. This means it won’t issue filing or record-keeping penalties, as long as businesses are doing their best to comply.
However, it remains open to interpretation what “doing their best” means in practice, and those businesses found not to be making efforts to comply could still face significant penalties.
If you have yet to register for MTD or submit your first MTD VAT return and you need assistance with either, then please get in touch.