There are now only a few weeks left before the final stage of Making Tax Digital for VAT begins in April this year.
Under the upcoming final phase, even the smallest VAT registered business will need to comply with the quarterly digital recording and reporting of VAT – including those below the £85,000 VAT threshold who are voluntarily registered.
So far, hundreds and thousands of VAT registered businesses above the VAT threshold of £85,000 are complying with MTD, having invested time and money to bring their systems up to date with the compliance requirements.
Now many more businesses are likely to be caught out by the change, which will require smaller firms to use the latest MTD compliant cloud accounting software.
HMRC compatible software
It’s essential that you use the correct software to meet the new requirements. The software must be able to:
- Keep records in a digital form
- Preserve digital records in a digital form
- Create a VAT or tax return from the digital records held in functional compatible software and provide HMRC with this information digitally
- Provide HMRC with VAT and tax data voluntarily
- Receive information from HMRC via the API platform
The best software solution for any business is likely to depend on its individual facts and circumstances, including budget, level of technical ability and the wider business needs.
MTD for VAT Software ranges from free or inexpensive bridging software, which can take return information from an existing spreadsheet and submit it to HMRC to more expensive all singing and dancing packages which can be used for record keeping, accounting, tax and more.
We can help you find online cloud accounting software that is suited to you and your business’s needs.
Once you have a suitable software in place, make sure you sign up for the MTD for VAT Service here. Exemptions are available for various reasons such as due to disability or age, but you must apply to HMRC for an exemption as soon as you can here.
One of the More Important Questions for unincorporated businesses is whether their chosen software will work for both MTD for VAT and for ITSA when rolled out from April 2024.
The Software market for MTD for ITSA remains very limited – with only seven packages currently on HMRC list of Compatible Software here.
Next Steps for Voluntary Registered Businesses
- Once your new software is in place, sign-up for MTD for VAT
- But do not sign up for MTD for VAT until the last non-MTD Return has been submitted
For Example, a Voluntary Registration on Stagger 1 – their first MTD Return will be quarter ending 30th June 2022, therefore they need to wait until the last non-MTD return i.e., 31st March 2022 has been filed before signing up, but you must ensure signed up by 7th August 2022
The exact sign-up window depends on how your business pays for VAT – if by Direct Debit HMRC current guidance indicates that they should sign up:
- No earlier than five days after their last non-MTD return is filed; and No later than seven days before the first MTD return is due
If you don’t pay by Direct Debit, you should sign up by:
- No earlier than the filing date of the last non-MTD Return; and No later than three days before the first MTD Return is due
Failure to comply
Given the scale of the change, there are concerns that some businesses may not be ready in time. Unlike the initial launch of MTD, there will be no soft-landing period for this latest stage and businesses can expect to be fined or even investigated by HMRC for non-compliance.
Originally penalties were due to use the new points-based system, which would see penalties accrued over time for frequent late submissions.
This has been delayed now until 2023 at the earliest and so the default surcharge rules will continue to apply for the first few periods these businesses are in MTD.
Default surcharges has less leniency built into it than the new penalty points-based late filing penalty regime, which could spell unwelcome news for those who find themselves struggling to file their returns under MTD, especially as HMRC appears reluctant to provide any specific penalty relaxation.
Here to help
We have already helped many businesses migrate to the latest cloud accounting technology in preparation for MTD, delivering many benefits beyond compliance.
Given the impending implementation of these new rules and the risks associated with not meeting them by April next year, we are ready and able to support businesses as they prepare for MTD.
Do you need help with MTD? Don’t leave it too late, speak to our team today.
