With less than three months to go before Making Tax Digital for VAT comes into effect, is your business ready for the upcoming changes to digital recordkeeping and filing that the new regime will bring? This article outlines the key aspects of Making Tax Digital for VAT and how to ensure your business is prepared.
As previously discussed, Making Tax Digital for VAT is one branch of the UK’s wider Making Tax Digital initiative and forms part of HMRC’s ambition “to become one of the most digitally advanced tax administrations in the world”.
In short, Making Tax Digital for VAT should apply to the vast majority of businesses that are VAT registered and have a taxable turnover above the VAT registration threshold (currently set at £85,000) unless an exemption applies. Additionally, businesses may choose to opt-in to the initiative.
The majority of businesses that fall under the remit of Making Tax Digital for VAT will, from 1 April 2019, be required to keep digital VAT records and file VAT returns with HMRC using software that is compatible with the Making Tax Digital platform.
However, there are a small number of entities, such as trusts, VAT groups, and unincorporated not for profit organisations, that will not have to comply with Making Tax Digital for VAT until 1 October 2019.
HMRC has sent letters to the businesses that fall into the 1 October 2019 start date for Making Tax Digital for VAT. The letter lets the business know of its delayed Making Tax Digital start date and outlines when it may be able to join the Making Tax Digital for VAT pilot.
I need to comply with Making Tax Digital for VAT – how do I know my business is ready?
If you’re still getting your business prepared for the upcoming changes under Making Tax
Digital for VAT, then it’s worth checking that your business has:
• Processes in place to ensure compliance with the digital recordkeeping requirement;
• Software that is compliant with the Making Tax Digital for VAT platform: HMRC does not plan on releasing its own Making Tax Digital software, so businesses should ensure they have a suitable software provider in place to successfully file their VAT returns with HMRC.
HMRC has published a list of compatible software providers for Making Tax Digital, which you can view here. This list includes DataTracks’ own Making Tax Digital compatible software solution, which is currently in development; and
• Joined the Making Tax Digital for VAT pilot (if eligible): Originally launched on 16 October 2018, the Making Tax Digital for VAT pilot has gradually increased the number and types of entities that can participate. For more information on whether your business can join the pilot, see HMRC’s guidance.
Additionally, if your business has a tax agent, don’t forget to speak to them about Making Tax Digital. For example, it’s worthwhile confirming whether your agent has an agent services account in place, as this account allows them to access the Making Tax Digital pilot scheme, among other HMRC online services.
Will there be penalties for non-compliance?
As with any regime, expect penalties to be applied for non-compliance with Making Tax Digital for VAT. The proposed penalty regimes for Making Tax Digital for VAT are outlined below.
It is understood that under the new proposed penalty regime, no late payment penalties under Making Tax Digital should apply provided the taxpayer has a reasonable excuse as to why the payment was made late.
If the taxpayer doesn’t have a reasonable excuse, then they should have 15 days to either pay the tax due or arrange a time to pay arrangement before they are penalised.
After those 15 days have passed, the amount of the penalty should depend on how late the payment is.
Late return submissions under Making Tax Digital for VAT are expected to be subject to a new points-based penalty model. Under this model, a taxpayer should receive a penalty point if they submit a late return. Once a set threshold of points has been passed, a penalty should be levied, with subsequent late submissions also attracting penalties.
Although it is understood that a grace period for late filing should be in place until April 2020, further guidance on the points-based penalty regime can be found here.
DataTracks has over a decade of experience helping clients meet their compliance and reporting obligations to HMRC. For more information on how DataTracks can help businesses with their Making Tax Digital for VAT needs please visit our website or send an email to firstname.lastname@example.org.