1.17m businesses still to sign up to Making Tax Digital

With only one month to go, there are still 1.17m businesses, out of a total of 1.2m, which are yet to sign up to Making Tax Digital for VAT, although HMRC says 2,000 business are now signing up each day

Nearly 30,000 businesses have signed up to the new service but HMRC is now urging the remaining 1.17m businesses to sign up as soon as possible.

HMRC has written to every business that will be mandated with information on what they should do and how.

For VAT periods from 1 April most businesses above the VAT threshold will need to keep their records digitally and submit their VAT return using Making Tax Digital compatible software. However, companies will not have to file their first digital VAT return under Making Tax Digital for VAT until 1 July at the earliest.

In the first year of mandatory reporting, HMRC has confirmed that it will take a soft penalty approach and companies will be able use a 'cut and paste' approach during the one-year soft landing before companies need to use digital links.

The one-year soft landing period will be in place until at least April 2020, depending on the classification of the business, giving organisations time to implement a system of digital links between all parts of their functional compatible software, for example where a company has a number of subsidiary companies with separate finance functions and departments.

The Low Incomes Tax Reform Group (LITRG) has warned VAT registered individuals and businesses they have little time to apply for an exemption from Making Tax Digital.  Head of LITRG Team Victoria Todd said: ‘Those with VAT quarters beginning on 1 April 2019 will have little over a month to decide whether they have grounds for exemption and make an appropriate claim. It is unlikely that someone who is denied an exemption will now have sufficient time to either challenge the decision or get themselves ready to go digital by 1 April.’

Certain groups of people, for example those who are ‘digitally excluded’ due to disability, age, remoteness of location or any other reason - may be excused from Making Tax Digital for VAT altogether if exemption is granted by HMRC.

Todd said: ‘People must show it is not reasonably practicable for them to comply with the MTD requirements of either digital recordkeeping and/or filing returns digitally to get an exemption. They must call the HMRC VAT helpline (0300 200 3700) or write to HMRC’s VAT Written Enquiries Team and explain their situation. They must tell HMRC why it is difficult or impossible for them to comply with the new requirements.

‘HMRC will consider the claim and will then write to taxpayers to tell them whether the claim is successful or not. If a claim is turned down taxpayers can appeal against the decision and details of how to do this will be included in the letter from HMRC.’

HMRC started its Making Tax Digital pilot in April 2018 to test whether the system worked correctly and to see how businesses and individuals interacted with the tax authority. Theresa Middleton, director of Making Tax Digital for Business at HMRC, told Accountancy Daily: ‘We have tested all the journeys end-to-end to make sure they work in the right way so that, for example, people can sign up, data comes through it the correct format and HMRC can pass data back to taxpayers through software.

‘The pilot started in April 2018 with technical testing so all the queries focusing on whether the programming itself was working were tested before the pilot was opened to taxpayers. Therefore, the technical glitches were ironed out at the start of the process.’

HMRC has outlined what businesses need to do to prepare for Making Tax Digital. This includes:

  • take steps to find out if your business is affected by the Making Tax Digital changes and what you need to do if it is.
  • talk to your accountant or other agent – if you use one to manage your VAT affairs - about how they are making returns Making Tax Digital compliant.
  • speak to your software provider if you already use software to ensure it will be compatible.
  • those businesses who are either not represented by an accountant and/or do not already use software will need to select software to use and sign-up to Making Tax Digital, then authorise their new software.

Guides for businesses, agents and others including advice are here.

Report by Amy Austin

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