The deadline for the first round of VAT returns under Making Tax Digital (MTD) is fast approaching – here’s what you need to know if you haven’t already filed your first VAT return via MTD
If your VAT quarter started 1 April and you are an eligible organisation, you have until 7 August to file via MTD. The culmination of work that began in 2015, HMRC is hoping the new system will ultimately simplify the process of filing VAT returns and reduce the amount of tax lost to errors.
We take a look at the most important things you need to know about MTD.
Do you need to register for MTD?
Most VAT registered businesses with taxable turnover greater than £85,000 are required to register. Those with smaller turnovers can still register on a voluntary basis. However, there are exceptions.
You can apply for an exemption from MTD if you cannot use a computer or the internet because of disability or where you live, or object to using computers on religious grounds. You are automatically exempt if you are already exempt from filing VAT returns online or you are subject to insolvency. And if you use the VAT GIANT service because you represent a government department, NHS Trust or a royal household, you cannot sign up for MTD yet.
There is a deferral for organisations with complex tax. If you are part of the deferral group, HMRC will have written to you and you will not have to join MTD until after 1 October. According to the Chartered Institute of Taxation, deferral applies to businesses falling into one of the following categories: trusts, ‘not for profit’ organisations that are not set up as a company, VAT divisions, VAT groups, those public sector entities required to provide additional information on their VAT return (Government departments, NHS Trusts), local authorities, public corporations, traders based overseas, those required to make payments on account, and annual accounting scheme users.
How to comply
To comply, you should have started keeping digital records of your VAT from 1 April, and you need to submit your return using compatible software. HMRC has a list of compatible software and ‘bridging’ software which allows users to file data kept in a spreadsheet.
The deadlines and frequency of your returns will not change because of MTD.
Before you can use your software to send VAT returns, you will need to authorise it, a process that varies from package to package so check with your software provider.
Sign up for MTD
Sign up for MTD on the HMRC website. HMRC says you need to sign up at least 72 hours before your return is due if you are not paying by Direct Debit. If you wish to pay by Direct Debit, allow seven working days to sign up.
After you sign up for MTD, you can no longer use VAT online services to send your returns.
HMRC insists that signups for MTD are proceeding at pace despite publicly released figures showing that registrations have been lagging, especially in certain business sectors. As of 15 July, HMRC’s own figures revealed that only 25% of financial firms had registered for MTD compared to the agricultural sector which enjoyed a 50% registration rate.
Of 1.2m VAT registered organisations, 600,000 had registered by mid-July, a figure which had risen to more than 800,000 by 1 August, according to an HMRC spokesperson.
File your return
File your return by the filing deadline. MTD is designed to take the figures for your VAT return directly from your accountancy software. Government figures indicate that £9.9bn is lost due to avoidable errors, £3bn of which is linked to VAT.
HMRC promises leniency
With hundreds of thousands of firms yet to sign up to MTD, HMRC has promised to be lenient with firms that miss the deadline for completing their returns, provided the companies have acted in ‘good faith’.
‘During this first year we won’t be issuing filing or record keeping penalties to businesses doing their best to comply,’ said Theresa Middleton, director of Making Tax Digital at HMRC.
While organisations that encounter problems filing their returns on time can expect some leniency, HMRC has not spelled out what counts as extenuating circumstances.
However, don’t expect any leniency when it comes to paying the VAT bill – the Association of Taxation Technicians (ATT) has warned, ‘Businesses which do not pay their VAT, or pay late, remain exposed to penalties in the normal way.’
The first cohort of organisations are required to file their digital returns by 7 August. Members of this group wishing to pay by Direct Debit should have registered for MTD by 27 July.
Call HMRC if you have a problem
HMRC has increased the number of staff on its MTD helpline following criticism over the poor quality of customer service. Complaints included long delays in picking up calls, calls being terminated after 10 minutes on hold and a failure to make call backs.
Defending the organisation’s performance in a letter to the Treasury Committee of the House of Commons, chief executive Jon Thompson said the helpline had suffered as staff were diverted to deal with Brexit preparations, but an additional 100 people had subsequently been recruited, doubling the size of the helpline.
Tom Reeve | 01-08-2019