HMRC has promised not to throw the book at firms who struggle to register for Making Tax Digital (MTD) as new figures show total take-up lagging in certain sectors
Three-quarters of VAT registered financial firms have not signed up for Making Tax Digital (MTD) despite the looming legal deadline for the first mandatory filing. Under the ambitious new MTD system, VAT-registered businesses trading over the £85,000 threshold must keep their records in a digital format and submit their VAT return using compatible software.
MTD became law for VAT periods starting on after 1 April 2019 which means the first cohort of organisations will be required to file their VAT returns digitally by 7 August. If paying by direct debit, these businesses must register by 27 July. Organisations that are deemed to be 'more complex' have until 1 October to register.
More than 1.2m organisations must submit their VAT information digitally, directly from MTD-compatible software. HMRC says this will reduce tax lost due to errors as the information comes directly from the accountancy software. Government figures indicate that £9.9bn is lost due to avoidable errors, £3bn of which is linked to VAT.
MTD was first announced in 2015, but despite the lengthy time to publicise the scheme and several postponements to its implementation, awareness among businesses appears low. Figures released by HMRC show that only 25% of financial firms have registered. This contrasts with the agricultural sector in which 50% of businesses have registered.
HMRC says that organisations are registering at the rate of 10,000 per day and to date 600,000 have signed up.
However, it says it will be lenient with organisations that run into problems registering for the service, provided they act in good faith.
Theresa Middleton, Director of Making Tax Digital at HMRC, said: ‘During this first year we won’t be issuing filing or record keeping penalties to businesses doing their best to comply.’ However, it says that sanctions could be levied in cases of deliberate non-compliance or to safeguard VAT revenue.
John Forth, the head of RSM's financial services indirect tax practice commented: 'While it's not clear why financial firms have been so slow to sign up, these figures are pretty shocking.
'It is possible that HMRC have overestimated the size of the problem due to the complexity of the VAT regime. Alternatively, they may have failed to recognise that many financial services organisations will be regarded as complex and will therefore be subject to the 1 October deadline. As a result, we may see this figure come down rapidly over the next few months.
'While HMRC have stated that they won't issue filing or record keeping penalties during the first year, financial firms should not see this as a reason not to register. MTD represents a major change to the way businesses report and pay their VAT, and businesses need to make sure they are ready.
'Currently, HMRC are dealing with 10,000 registrations every day. Clearly there are tens of thousands of VAT-registered financial businesses that need to get their skates on and register at the earliest opportunity.'
Those who are exempt from filing VAT online because of accessibility or other issues will remain exempt from MTD, HMRC said, with exemptions available to others who have problems accessing the system on a case by case basis.