With the 1 April deadline for the introduction of Making Tax Digital (MTD) for VAT fast approaching, Alison Horner, partner and Head of VAT at MHA MacIntyre Hudson, gives her top tips on how to survive the new system.
MTD has been on the cards for some time, but HMRC hasn’t always been effective in communicating how it will work, and many businesses have held off making preparations for too long. Panic as the deadline approaches could lead to serious pitfalls, such as registering too early, relying unduly on an exemption you don’t actually have, and paying far too much for compliant software.
How not to shoot yourself in the foot
You need to prepare for MTD, but make sure you don’t register before you have to. It’s not commonly known that you have to wait for the current VAT quarter to end before registering. You only have to register once the deadline has passed for your last “normal” VAT return.
A business joining for the June 2019 VAT return (the first quarterly VAT return affected) should only register from 8 May if it has no direct debit set up, or from 15 May if payment is made by direct debit.
This is because the due date for payment of the last “normal” return of March is 7 May, or 10 May by direct debit. Businesses on monthly returns will be able to register for their April return on 8 May, or 15 May if there’s a direct debit.
Once registration is complete, HMRC will email you within 72 hours. Do not attempt to submit any returns until you have this confirmation. You only have to register once the deadline has passed for your last “normal” VAT return, and this return has been submitted.
Are you really exempt?
You’re exempt if your taxable turnover is below £85,000. Overseas traders don’t need to start MTD before October 2019, but some may have letters from HMRC telling them they’re liable from 1 April 2019. The solution is to write to HMRC notifying them of your overseas status and to register from 1 October 2019.
Certain organisations, such as VAT Groups, charitable trusts and large businesses who are in the payments on account scheme have deferrals until October 2019, but to qualify, HMRC must have confirmed this by letter. If you don’t have a letter, you don’t have a deferral. If you think you are eligible for a deferral and haven’t received a letter you need to contact HMRC. They have a very useful web chat facility and a telephone enquiry system.
Don’t pay through the nose for the right software
MTD is all about having the right software. In theory submitting your tax under MTD isn’t difficult but this hasn’t stopped many companies paying massive premiums to upgrade their software. If you still haven’t acquired the right software don’t panic, and don’t pay too much.
If you aren’t able to upgrade your accounting software to be MTD compliant then bridging software is the most efficient short-term solution. This could be for example an API enabled spreadsheet, which connects your software to HMRC’s systems and allows you to digitally report.
You can also use your tax adviser, who will be able to register you for MTD via an agent’s portal.
If all else fails how much trouble are you in?
HMRC has indicated it intends to impose flat penalties on those MTD liable taxpayers who continue to submit VAT returns in the old way. It has the power to charge a penalty of up to £400.
The good news is that HMRC is expected to operate a soft landing where the trader has made reasonable efforts to comply. Keeping the communication channels open will be important and you should keep an audit trail, for example take screen prints of your attempts to submit a return. We recommend you always pay your VAT liability on time, even if you’ve had problems submitting your VAT return.