HMRC launched Making Tax Digital (MTD), effective from 1st April 2019, in order to streamline the process of submitting records digitally for VAT-registered businesses. It means less paperwork, easier organisation and simple submissions. However, MTD has raised a lot of questions and many people are concerned about the process of switching to MTD-compatible software. and the consequences of late filing. We have compiled this handy guide to let you know how MTD for VAT applies to you and your business.
MTD is only compulsory for VAT-registered businesses that have a taxable turnover of over £85,000; although businesses below this threshold can also sign up if they would like. HMRC are encouraging as many businesses as possible to convert to MTD software and submitting VAT returns digitally. However, if your turnover decreases to below this threshold after the 1st of April 2019 it is still compulsory for you to use a digital records system and submit VAT returns through MTD software. HMRC are allowing businesses to use ‘Bridging Software’ to convert their spreadsheets to an MTD format to allow them to submit this information in the approved format to HMRC. However, this should not detract from the other benefits of using Cloud Software.
HMRC have introduced a “soft landing period” for the first year of MTD for VAT. This acts as a buffer period to allow businesses to set up digital links between their software, accounts and HMRC. If they are making an effort to comply with MTD, businesses will not be penalised for mistakes during this period.
If VAT payments are repeatedly missed they will begin to impose a surcharge and penalty system. This forgives the first one or two errors but will begin to charge businesses if mistakes are continually made.
Therefore, it is clear that MTD is an important aspect of accounting and something that businesses should be aware of. While it is easy to worry about the complexities of introducing a new system, and the penalties that occur if this is not put in place effectively, it is also important to note that HMRC are being lenient towards businesses that are trying their best to comply with the new system.
We are very happy to answer any questions you have relating to MTD for VAT. Please feel free to let us know if we can help.