Making Tax Digital (MTD) for VAT got here into power within the UK on 1st April 2019, however whereas the deadline might have come and gone, many companies and accountants affected by the brand new guidelines are nonetheless making an attempt to kind the actual fact from the fiction. Many are nonetheless not sure as to what they should do to make sure that they’re HMRC compliant, and crucially, what is going to occur in the event that they fail to adjust to the brand new guidelines.
MTD for VAT is the primary main section within the authorities’s general initiative to make tax digital, which is designed to make it simpler for companies to maintain on high of their everyday accounting. The laws is meant to make tax administration simpler, environment friendly and simpler for taxpayers by integrating digital record-keeping and enabling companies to generate and ship updates straight from their chosen accounting software program to HMRC.
Whereas the federal government’s intention is to carry the times of foraging for receipts and painstakingly checking by spreadsheets or recordsdata for accuracy to an finish, many small companies have been fairly proud of the established order, and are reluctant to embrace this transfer in direction of digital.
We perceive that change can usually be troublesome, so we need to make the transition as easy as attainable for these people who aren’t positive what the brand new modifications to MTD for VAT will imply for them, and what the penalties will probably be in the event that they get caught out. So what do enterprise homeowners must know concerning the new guidelines?
What’s MTD for VAT?
In quite simple phrases, MTD for VAT requires VAT registered companies with annual VATable gross sales of over £85,000 to maintain their VAT data digitally and use MTD appropriate software program (software program that is ready to meet all of the calls for of the brand new MTD guidelines) to submit their VAT returns.
The cost deadlines and the frequency with which people must file VAT returns will stay the identical as they have been previous to MTD. So should you pay your VAT month-to-month or quarterly, the deadline for submitting your return and paying any VAT you owe continues to be one calendar month and 7 days after the tip of the VAT interval.
A comfortable touchdown?
For companies and accountants who’re nonetheless at the hours of darkness about how MTD will influence them, there’s no must panic. HMRC has mentioned that the primary 12 months of MTD for VAT (starting 1st April 2019) will probably be a “comfortable touchdown interval”. Which means if your small business is affected by MTD, you should have a 12 months to create a “digital hyperlink” or connection between the software program the place you retain your accounts and HMRC. Throughout this era, HMRC is not going to penalise companies that don’t have a digital hyperlink in place. Nonetheless, this doesn’t imply that HMRC received’t be issuing different VAT associated penalties throughout the comfortable touchdown 12 months.
Within the 2019 Spring Assertion, the Chancellor confirmed that HMRC would cope with late filings and record-keeping errors with a “mild contact”, and mentioned that “the place companies are doing their greatest to conform, no submitting or record-keeping penalties will probably be issued”. Regardless of these said leniencies, if we learn between the traces, there are nonetheless a few issues that we will assume will nonetheless represent a penalty offence inside the comfortable touchdown interval:
If a enterprise shouldn’t be doing its greatest to adjust to MTD VAT submitting and record-keeping requirement
Late funds of VAT payments
In these two instances, HMRC is extremely more likely to keep its proper to use the present VAT penalties.
Present VAT penalties
Lacking a VAT deadline triggers a 12 month interval throughout which you will be required to pay a surcharge on high of your current VAT invoice should you proceed to overlook deadlines. The worth of this surcharge will depend upon what number of instances a VAT cost is missed.
Different VAT penalties which might be more likely to apply throughout the first 12 months of MTD are:
Sending a VAT return that accommodates a careless or deliberate inaccuracy may end up in a penalty of as much as 100% of any tax under-stated or over-claimed;
Failing to alert HMRC inside 30 days should you ship a VAT evaluation which is just too low may end up in a penalty of as much as 30% of the evaluation;
Submitting a paper VAT return may end up in a penalty of as much as £400 until HMRC has granted you an exemption from submitting a web based return.
New VAT penalties in 2020
As soon as the comfortable touchdown interval has completed, the VAT penalty system for late submission will probably be up to date to carry it extra into line with the penalty factors programs for late submission and cost of Earnings Tax and Company Tax. The present plan is that late VAT submissions will accrue penalty factors as follows:
One penalty level for a missed VAT return
A tremendous after 4 gathered factors for a missed quarterly VAT return
A tremendous after 4 gathered factors for a missed month-to-month VAT return
Penalties for late cost of VAT are additionally altering in 2020, and will probably be as follows:
As much as 15 days late: no penalty
Late cost between 15 and 30 days: 50% of HMRC rate of interest cost
Late cost after 30 days: 100% of HMRC rate of interest cost, plus every day curiosity cost
Rates of interest change over time, so you’ll be able to test the extent of rate of interest which can apply on HMRC’s web site.
file your VAT return underneath MTD
First issues first. Should you haven’t already carried out so, you’ll want to move to HMRC’s MTD for VAT join web page.
As soon as that is carried out, it’s worthwhile to join your HMRC account to your MTD appropriate software program
Should you aren’t already utilizing MTD appropriate software program, then now could be the time to begin. There are many totally different choices out there, and which one is greatest for you’ll depend upon your small business. When organising your MTD compliant software program, be sure that your accounting dates and VAT settings are right. If there are errors throughout the implementation stage, it may trigger issues down the road.
As soon as your accounting software program is all arrange, you simply want to attach your HMRC account to your accounting software program, authorise your software program to file your VAT returns in your behalf and also you’re able to go!
Emily Coltman FCA, Chief Accountant, Free Agent
Additional studying: Companies ought to begin partaking with HMRC digitally for VAT