Making Tax Digital for VAT comes into force

Apr 19, 2019

Making Tax Digital (MTD) is finally upon us, with more than a million VAT-registered businesses now included in the programme for VAT returns and record-keeping.

While voluntary MTD pilots have been open to the public for income tax and VAT since 2018, this is the first mandatory stage of the scheme, which is intended to modernise the tax system.

However, current statistics suggest that firms remain slow to take it up. The Government said 100,000 businesses had signed up by 1 April, with a further 4,000 signing up every day.

If businesses were to continue signing up at the same rate, this would still mean only around 600,000 will have signed up by the time the first set of VAT returns under MTD are due on 7 August 2019.

Theresa Middleton, director of the Making Tax Digital for Business programme, said:

“Now is the time for those businesses affected by MTD who haven’t done so already to begin preparing to switch over and start experiencing the benefits MTD has to offer.

“You don’t necessarily need to sign up from day one, but you do need to make sure you’re keeping your records digitally for your next VAT period which starts on or after 1 April.”

What’s changing?

MTD is part of HMRC’s plan to become “one of the most digitally advanced tax administrations in the world”.

It’s intended to make the tax system more effective and efficient, and to make it easier for businesses and individuals to get their tax right.

Businesses included in MTD for VAT have two main responsibilities: to keep digital records and to file VAT returns using compatible software approved by HMRC.

This applies to VAT-registered businesses with a taxable turnover of more than £85,000, with most firms above the VAT-registration threshold to be mandated by 1 June 2019.

What are the deadlines?

Although MTD for VAT has now become law, not all of the businesses included will see an immediate change.

The earliest deadline for mandatory MTD returns isn’t until 7 August, although the first digital records must be kept for VAT periods starting on or after 1 April 2019.

The deadlines for businesses with an April start date are as follows:

First mandatory MTD for VAT return period Digital accounting records must be kept from: File first mandatory MTD for VAT return by:
1 April 2019 – 30 June 2019 1 April 2019 7 August 2019
1 May 2019 – 31 July 2019 1 May 2019 7 September 2019
1 June 2019 – 31 August 2019 1 June 2019 7 October 2019

Different deadlines apply to a small minority of businesses with more complex requirements, which have the deferred start date of 1 October 2019.

What to do if you haven’t signed up

The Government has assured businesses not to panic if they haven’t prepared yet, as 1 April is not a strict deadline for sign-ups.

HMRC has also confirmed it will be taking what it calls a “light-touch approach” to MTD compliance during the first year of implementation.

This means it won’t issue filing or record-keeping penalties, as long as businesses are doing their best to comply.

However, it remains open to interpretation what “doing their best” means in practice, and those businesses found not to be making efforts to comply could still face significant penalties.

Talk to us if you haven’t prepared for MTD, and we can sign up on your behalf.

Get in touch to talk about Making Tax Digital.