MTD for VAT trips up monthly taxpayers

Nearly 4,000 businesses who pay VAT monthly have missed the monthly Making Tax Digital VAT filing deadlines since April

A Freedom of Information request by accounting firm UHY Hacker Young shows that 3,860 businesses have failed to meet their monthly VAT deadline since April as they struggle to adapt to HMRC’s Making Tax Digital (MTD) system.

From 1 April, all VAT registered businesses over the £85,000 threshold face mandatory digital VAT filing, replacing the old nine-number filing system. Now all returns must be filed using commercial software or API extensions to export Excel in the correct format into HMRC’s Making Tax Digital portal.

HMRC is due to release the latest figures on the number of businesses registered for Making Tax Digital for VAT later this week after they have been analysed. The last update in July showed that half of UK businesses that have to mandatorily file through MTD had signed up to the digital filing system, leaving 600,000 businesses still in the process of signing up or unaware of the changes.

In mid-July, HMRC said that up to 10,000 businesses a day were signing up to MTD. This would still leave a significant tranche of non-compliant companies.

This figure is likely to increase after the 7 August 2019 VAT return deadline when the bulk of VAT paying businesses were liable to submit mandatory digital returns.

The monthly payment deadlines were missed by VAT registered businesses settling VAT bills through payment on account as they have to settle accounts in April, May and June 2019.

The MTD system is designed to reduce VAT fraud and the level of errors in returns, and HMRC plans to extend the system to income tax and property-related taxes over the next few years.

The FoI response from HMRC stated: 'Based on figures to late June, only 2% of businesses who have passed their VAT filing deadline since signing up to MTD for VAT have failed to file a VAT return digitally. The absolute number is 3,860 businesses between 1 April and 25 June 2019.  It is important to understand the context for these figures. These figures are likely to change as late filers submit their returns for the 7 June deadline.'

Sean Glancy, VAT and indirect taxes partner at UHY Hacker Young, said: ‘A sudden overhaul of the long-standing VAT return system has come as a shock for many businesses. Thousands have already missed the boat and failed to file their VAT returns under MTD.

‘HMRC has promised that the digitisation of VAT returns will benefit businesses in the long run. However, with rising technological and staffing costs, many companies will feel they are getting a rough deal.’

HMRC has said that it will not impose penalties on businesses missing their VAT return deadline during the first year of MTD, provided they act in good faith.

After the soft-landing period for penalties ends in April 2020, the normal VAT penalty system will kick in with fines for late payment. These fines operate on a cumulative basis and increase depending on the number of times businesses have defaulted on their VAT returns in 12 months. They can rise as high as 15% of the total amount of VAT due if businesses miss their VAT deadline more than six times in 12 months.

HMRC can also impose penalties of 100% of any under-stated or over-stated VAT if businesses send a return that contains a careless or deliberate inaccuracy.

Glancy adds: ‘We could see even more businesses suffer from using new systems that many are finding hard to acclimatise to.

‘HMRC has adopted a light touch against businesses missing their VAT deadline under MTD. However, this will not always be the case – future late filings will be punished.’

Sara White | 12-08-2019

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