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.

Source: Accountancy Daily by Pat Sweet, additional reporting by Sara White.

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Businesses not ready for Making Tax Digital VAT deadline

Nearly two thirds of businesses (64%) say that Making Tax Digital is a good idea but that they need more support with their plans ahead of the deadline of 1 April for mandatory digital VAT reporting, and only 12% are confident of their approach, according to research from KPMG

The firm’s poll of 1,000 businesses asked which statement best described their attitude to Making Tax Digital and the 2019 deadline to comply with the new VAT legislation requiring all businesses registered to pay VAT over the threshold of £85,000 to digitally report transactional quarterly reports.

While nearly two thirds (64%) of respondents thought it was a good idea but wanted more support, one in five (19%) could see no advantages of changing the current VAT reporting system, while 5% said it would be damaging to their business.

Just 12% were supportive and ready for the 1 April deadline, literally days after Brexit day on 29 March.

From that date, most VAT-registered businesses above the threshold of £85,000 will have to keep digital records and submit VAT returns using compatible software.  A small percentage of businesses with more complex needs are deferred to 1 October. After a soft-landing period of a year, a further requirement for digital links throughout the VAT return process, or a digital audit trail, will be required until the full implementation deadline of 31 March 2020.

Chris Downing, tax partner at KPMG said: ‘With just over a month to go until the deadline, it’s worrying to see that almost two thirds of businesses say that they need more support and are still in the process of working out what they need to do. This could potentially be both costly and time-consuming, depending on the changes that need to be made.

‘Although 98% of VAT registered businesses already file VAT returns electronically, Making Tax Digital will involve significant changes to their existing processes. For example, keeping digital records, maintaining a digital audit trail of all business transactions, and implementing new software to submit their VAT returns digitally.’

Downing cautioned that businesses also need to think about the flexibility of their systems and processes to meet potential future requirements.

‘HMRC are seeking to become the most digitally advanced tax administration in the world. We are likely to see provisions for income tax and corporation tax further down the line,’ he said.

Source: Accountancy Daily - Report by Pat Sweet.

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Leading institutes back Lords call for MTD delay

A recommendation by a Lords committee that the government’s introduction of mandatory Making Tax Digital (MTD) for VAT should be delayed by at least one year is supported by the Low Incomes Tax Reform Group (LITRG), CIOT and the ICAEW.

Victoria Todd, head of the LITRG team, said that HMRC had underestimated quite how significant a change the programme will be for many small businesses, pointing out that that who will be forced to move to digital recording keeping for the first time ‘may well find the prospect very daunting and intimidating’.

She said that these businesses ‘will need time to familiarise themselves with what is required, both in terms of the digital record keeping requirements and any system requirements’, even though some of these businesses were still unable to join HMRC’s pilot scheme in order to test whether their systems are compatible.

‘We are very concerned that HMRC have not yet published any detailed information as to how exemption from MTD for VAT may be obtained. Some small businesses may want to apply for exemption from the new regime, which they are allowed to do where it is not reasonable to expect them to use digital tools because of age, disability or remoteness of where they live or work.

‘However, HMRC have not yet told people how they should apply for an exemption, or what they can do if their application is turned down. As it is likely to take some time to get a decision under any process introduced, if someone is denied an exemption when they were expecting to get it, they will now have very little time to get themselves ready to go digital by April 2019 - this is completely unacceptable.’

In its submission to the House of Lords economic affairs committee’s inquiry LITRG highlighted concerns about the challenging timetable, the availability of suitable free software, the small scale of the pilots and a lack of information for those requiring digital assistance and exemption.

Appearing before the committee in October 2018, Todd argued that MTD should not be mandatory, saying: ‘If a system is good and has benefits you would expect people to naturally want to use it, as is the case in the self-assessment system, filing online. We do not think it needs to be mandatory.’

The ICAEW has concurred with this opinion, saying that the pace of take-up should ‘be led by what is best for businesses themselves’. It recently conducted research which suggested that over 40% of businesses due to be affected by MTD were not yet aware of the impending change, and that 25% of affected businesses were still using a paper-based accounting system.

According to Anita Monteith, ICAEW tax manager, with only four months to go, ‘there is not enough time for businesses to act’.

‘We support HMRC’s ambition to increase the use of digital technology’, she said, ‘but we are concerned, as is the committee, that many VAT registered businesses are not going to be ready for implementation in April 2019. Direct communication by HMRC about this major change is only just beginning and with only four months to go, there is not enough time for businesses to act.

‘Time is running out. MTD for VAT is a major change in tax administration and, with its start date coinciding with Brexit, it is important for businesses, the economy and the UK tax system that it is a success. This is too important to be rushed.’

CIOT and the Association of Taxation Technicians (ATT) have also expressed doubts about the rollout of MTD and backed calls for a delay to the scheme. Adrian Rudd, chair of the CIOT/ATT digitalisation and agent strategy working group, said that although digitalisation ‘could lead to efficiencies for taxpayers, agents and tax authorities’, it should be something that businesses implement because it delivers those benefits and should ‘not be something they are forced to adopt’.

'If properly implemented, digitisation could lead to efficiencies for taxpayers, agents and tax authorities. But many businesses will really struggle to get ready in time, and we support the committee’s recommendation of a delay for MTD for VAT.

'Pushing back the start date for Making Tax Digital for other taxes to 2022 at the earliest, is something we support, but it is more important that there is sufficient time set aside for a full review and evaluation of MTD for VAT before this programme is extended.'

Source: Accountancy Daily - Report by James Bunney.

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Making Tax Digital for VAT pilot now live for businesses

The pilot is intended to allow up to 500,000 businesses to get fully involved with Making Tax Digital (MTD) for VAT and test it in full ahead of the April 2019 introduction of the system.

MTD for VAT is intended by HMRC to 'make it easier for businesses to manage their tax and will save them, and their agents, time which can instead be devoted to maximising business opportunities, encouraging growth and fostering good financial planning'.

The pilot is now available to sole traders and those who submit the VAT return for a limited company using a standard account period. HMRC notes that once signed up to take part in the pilot, entrants will have to continue to use Making Tax Digital compatible software to submit their VAT returns.

Restrictions on who can use the service currently apply. The pilot is at present not available to trusts or charities, or to those who are part of a VAT group or VAT division, trade with the EU, or are based overseas. Also excluded are partnerships and businesses that are newly registered for VAT and have not previously used an online account to submit a VAT return. Individuals or organisations that submit annual returns, have incurred a default surcharge in the last 24 months, make VAT payments on account, or use the VAT Flat Rate Scheme may not take part. However, HMRC expects that this pilot will be opened to more businesses in the near future.

In order to access the pilot, organisations or individuals will need to put into place software capable of interfacing with the Government Gateway. HMRC has provided a list of compatible software packages which includes Quickbooks, Xero, Sage 50 and PWC spreadsheet. Once software is in place, those wishing to enrol need to provide the Government Gateway user ID and password used to submit their VAT returns online. An existing VAT registration number is also required.

Professional tax agents with clients enrolling in the pilot are required to update their client’s details within 30 days. These include the business name, its place of business, the business’s bank details and its VAT return dates.

Mel Stride MP, financial secretary to the Treasury, greeted the news: 'HMRC is transforming the tax administration so that it is more effective, more efficient and easier for taxpayers. Today’s announcement means that around half a million businesses will be able to join MTD and start filing their VAT returns online making it easier to get their tax right first time.

'More and more businesses use digital tools every day to help them operate - tax should not be different. This is a major step towards bringing VAT into the 21st century.'

Theresa Middleton, director for Making Tax Digital for Business, said: 'Millions of people are already banking, paying bills and interacting with their suppliers and customers online. Using digital tools to help businesses manage their business income and expenses and get their tax right builds on this momentum and will also help them get more control over their finances.'

Brian Palmer, tax policy expert at the Association of Accounting Technicians (AAT), also commented, saying: 'Today HMRC has confirmed that the testing phase for the first implementation of MTD has gone public. 500,000 businesses will be able to join from today, with a further 100,000 able to apply by the end of this month.

'The pilot has been private to a select group of businesses and their accountants since April this year. Now the majority of businesses with a VAT taxable turnover of at least £85,000 will be able to join. As of 31 March 2019, it will be a requirement for these companies to file their VAT returns digitally. Those who trade with European Union state members, charities, and businesses which pay VAT on account are among those businesses who remain excluded from the pilot.

'If your business is in a position to do so - as one in three AAT members told us they were at the end of September - it makes total sense to engage with the pilot as soon as possible. That way, you can get fully involved with the opportunity to test the system in full, and train up all affected employees and clients where needed. In addition, you will be in a position to let HMRC know of any remaining teething problems prior to mandation itself.

'If your business is not ready to join the pilot, I would strongly advise that you start planning immediately to ensure the business can join well ahead of next April. There will be no prizes on offer for waiting. Of the 150 or so providers who have said they will provide MTD-compliant software, over 70 have already had their solutions recognised on HMRC's website. If you think it wise to test the system in full before next April and your provider is ready, there is little point in waiting, you might as enrol to join the pilot straight away.'

The Guidance: Use software to submit your VAT Returns is here

The Guidance: Agents: use software to submit VAT Returns is here

The Guidance: Update your clients’ business details if they are part of the Making Tax Digital for VAT pilot is here

Guidance: Find software suppliers for sending VAT Returns and Income Tax updates is here

Source: Accountancy Daily - Report by James Bunney.

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HMRC delays Making Tax Digital for VAT trial for businesses

HMRC has assessed 18 software suppliers as having met its requirements for Making Tax Digital for VAT, ahead of the mandatory deadline for online filing next April, while its public trial for businesses who will have to keep and submit digital records will not now start until later this year.

HMRC has published a stakeholder communications pack offering guidance about the requirements of Making Tax Digital, which will see VAT-registered businesses with a taxable turnover above the registration threshold required to keep and submit digital VAT business records and make digital VAT returns from 1 April 2019.

HMRC launched a private pilot of Making Tax Digital for VAT in April 2018, working with software providers in order to test its systems and their products. The guidance suggests this will become a public trial ‘later in 2018’, having previously indicated it could begin this summer.

HMRC will not be offering its own software products, but will provide the application programming interfaces (APIs) that commercial software developers will use to develop a range of applications that will enable businesses to keep their records digitally and integrate with HMRC systems.

The guidance describes the VAT trial as ‘a private pilot available to invited volunteer VAT businesses and their agents’ and says that ‘for now, we are limiting the number and types of business we invite into the pilot.’

According to HMRC’s latest update, more than 130 software suppliers have told HMRC that they are interested in providing software for Making Tax Digital for VAT, of which over 35 have said they will have software ready during the first phase of the pilot, which involves small numbers of invited businesses and agents.

So far, 18 suppliers including Intuit, IRIS, PwC, Xero and Sage, are listed as having tested their products in HMRC’s test environment and having demonstrated a prototype of their software to HMRC.

The guidance states: ‘We’ve invited a small number of volunteer VAT businesses who meet a specific set of eligibility criteria to join. Some are represented by agents and others are unrepresented. As we continue testing, we’ll increase the numbers and start to invite businesses with more complex features.’

HMRC also says it will provide more detailed guidance about the operation of Making Tax Digital for VAT after the launch of the public service later this year.

In March 2018 HMRC launched a pilot for Making Tax Digital Income Tax pilot on a voluntary basis. It will not be mandatory for businesses until at least 2020.

Businesses can sign up if they are a sole trader with income from one business and/or are landlords (except those with furnished holiday lettings).

If a business that signs up to Making Tax Digital for income tax has no other income to provide to HMRC they will not need to complete a separate self assessment return for 2018/19.

The stakeholder communications pack says: ‘Where additional personal income needs to be reported, such as employment income, bank and building society interest, dividends and gift aid, additional functionality will be made available in the coming months to allow software providers to build this into their products, meaning many more businesses will be able to send all of their additional personal income details using MTD.’

It also states that the income tax pilot ‘continues to be developed and additional functionality to allow more business to join will be released in the coming months’. This will include the ability to report other sources of income through software e.g. bank interest and dividends.

Currently there are four approved suppliers on HMRC’s list for Making Tax Digital for income tax: Absolute, Forbes, IRIS and Rhino.

HMRC says the communication pack provides information for firms, agents and others, who can use the contents to inform their own communications activity and key messages for their clients, customers or members.

As well as explaining the background to Making Tax Digital, it includes details of the pilots and encourages stakeholders to get involved in these, and to ensure that they and their clients are aware of new digital requirements.

Source: Accountancy Daily - Report by Pat Sweet.

Are you aware that you can keep up to date with the latest developments and news using our new mobile application. Download for Android and iPhone.

Please note that Emerald Accountants Limited shall not be liable for any loss or damage arising out of the use of any of the information disclosed in this article…