Penalty warning for those who enrol too early for Making Tax Digital

Frequently Asked Business Question:

I am VAT-registered and I have sales of about £200,000 per annum so I believe I have to register for Making Tax Digital for VAT. When must I do this by as I have read that there may be penalties applied if I register at the wrong time?

Top Tip:

The 1st April marked the introduction of Making Tax Digital (MTD) but businesses need to be aware that it is not the point at which those businesses effected by MTD need to sign up.

The sign up process can, and in many cases should, be completed at a later date. Businesses should only sign up for MTD once their last ‘pre-MTD’ VAT return has been filed using the existing Government Gateway.

It is important to note that once a business has signed up to MTD it must submit all VAT returns – including those for periods starting before 1 April 2019, using MTD-compliant software. This could cause problems if the business signs up to MTD before submitting its final return under the pre-MTD rules.

For example, a business which submits VAT returns on a calendar quarter basis will have to submit their VAT return for the quarter ended 31 March 2019 by 7 May 2019. If they have already signed up to MTD before submitting this VAT return then, even though the period predates the introduction of MTD, it must be submitted using MTD-compatible software or HMRC’s systems will not accept it. If the business has not planned for this they may encounter problems when it comes to meeting the submission deadline.

There is no soft landing with regards to MTD penalties. HMRC have said they will apply a light touch approach in the first year of MTD, but only in relation to record keeping penalties where the business has made a genuine effort to comply.

HMRC have been very clear that they want businesses to continue to pay their VAT on time under MTD, even where they have problems filing or keeping digital records. HMRC’s light touch approach to penalties does not extend to the payment of VAT liabilities.

Businesses which do not pay their VAT, or pay late, remain exposed to penalties in the normal way. We have been advising all our clients that those businesses who have signed up too early and now find that they are struggling to file their returns under MTD should prioritise paying their VAT on time to ensure that they do not receive a penalty.

They should contact their software provider and/or HMRC as soon as possible to try and resolve their filing problems. It is also advisable to document any problems encountered and collect supporting evidence in case they do incur a penalty which they later wish to appeal.

You must sign up for MTD at least one week before your VAT Return is due, and at least 24 hours after your last non-MTD VAT return was filed. Businesses that pay VAT by Direct Debit cannot sign up in the 7 working days leading up to, or the 5 working days after their VAT Return is due.

Getting the timing right to sign up to Making Tax Digital is vital.

The advice above is specific to the facts surrounding the questions posed. Neither FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.