Penalty perils for early enrolment for Making Tax Digital

Businesses that have already signed up for Making Tax Digital for VAT but are yet to file their latest VAT return need to act quickly to avoid possible penalties if they encounter problems making VAT payments on time, the Association of Taxation Technicians (ATT) is warning

While 1 April 2019 marked the introduction of Making Tax Digital for VAT, this was not the point at which those businesses required to file digitally needed to enrol onto the new system. 

ATT advises that the sign-up process can, and in many cases should, be completed at a later date.

Businesses should only sign up for Making Tax Digital for VAT once their last ‘pre-digital’ VAT return has been filed using the existing government gateway facility.

Jon Stride, co-chair of the ATT’s technical steering group, said: ‘Once a business has signed up to Making Tax Digital it must submit all VAT returns - including those for periods starting before 1 April 2019, using Making Tax Digital-compliant software.

‘This could cause problems if the business signs up to Making Tax Digital before submitting its final return under the pre-Making Tax Digital rules. For example, a business which submits VAT returns on a calendar quarter basis will have to submit its VAT return for the quarter ended 31 March 2019 by 7 May 2019.

‘If it has already signed up to Making Tax Digital before submitting this VAT return then, even though the period predates the introduction of Making Tax Digital, it must be submitted using Making Tax Digital-compatible software or HMRC’s systems will not accept it. If the business has not planned for this, it may encounter problems when it comes to meeting the submission deadline.’

There is no soft landing for Making Tax Digital penalties, ATT is warning. HMRC has said it will apply a light touch approach in the first year of operation, but only in relation to record keeping penalties where the business has made a genuine effort to comply.

However, due to the extent of the changes HMRC is prepared to be flexible.

An HMRC spokesperson told Accountancy Daily: ‘MTD applies for periods from April, not before. Businesses are encouraged to file their last return through the old system before signing up to MTD but if they join early and then face difficulty complying we have committed to taking a light touch approach to filing and record keeping penalties.

‘Naturally, sanctions remain possible in cases of deliberate non-compliance, and in order to safeguard VAT revenue, so if people do face problems filing their returns, they should make sure they still pay the VAT that is due.’

Regardless of problems filing under the new system, there will be no leniency when it comes to actual payments of due VAT.

Stride said: ‘HMRC have been very clear that they want businesses to continue to pay their VAT on time under Making Tax Digital, even where they have problems filing or keeping digital records. HMRC’s light touch approach to penalties does not extend to the payment of VAT liabilities.

‘Businesses which do not pay their VAT, or pay late, remain exposed to penalties in the normal way.

‘We strongly recommend that those businesses who have signed up too early and now find that they are struggling to file their returns under Making Tax Digital should prioritise paying their VAT on time to ensure that they do not receive a penalty.’

ATT is advising any business affected by early enrolment to contact their software provider and/or HMRC as soon as possible to try and resolve their filing problems.

It is also advisable to document any problems encountered and collect supporting evidence in case they do incur a penalty which they later wish to appeal.

Pat Sweet, additional reporting Sara White

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