Should HMRC delay Making Tax Digital for VAT?

The Lords Economic Affairs Committee says the Government need to listen to small businesses and delay the rollout of Making Tax Digital for VAT programme by at least a year.

Recently, the House of Lords’ Economic Affairs Committee has called for HM Revenue & Customs (HMRC) to halt the deployment of its Making Tax Digital for VAT programme.

A report conducted by the committee found that small businesses are unlikely to be ready for April 2019 and as a result, HMRC must begin to listen.

“Nearly 40 per cent of affected businesses have not heard of Making Tax Digital, let alone have started to prepare for a substantial change to their accounting processes,” the report said.

“HMRC is alone in its confidence that all one million businesses will be ready for Making Tax Digital for VAT in April 2019. They have underestimated the time for research, planning, training and system changes that some businesses will need.”

The Economic Affairs Committee report highlighted that HMRC must treat small businesses fairly, and the April 2019 deadline could lead to “unjustifiable risks” for businesses.

The committee also raised concerns about the software required by businesses to comply with the programme, emphasising that there had yet to see any free software products offered by HMRC.

The committee explained: “The emerging software market appears difficult to navigate. It is unfair to expect businesses to make choices about their accounting software without a better understanding of the future Making Tax Digital regime.”

Committee Chairman, Lord Forsyth said HMRC had “neglected its responsibility to support small businesses” by implementing the programme.

“Small businesses will not be ready for this significant change to their practices if it is introduced on 1 April, particularly with Brexit taking place three days earlier. The Government must delay its introduction.”

The committee has recommended that instead of making the programme mandatory from April, HMRC should allow businesses to join on a voluntary basis for at least a year. This ensures companies are ready, but also it allows the software market to develop and ensure that the department’s systems are “fully and appropriately tested”.

Lord Forsyth said: “Making Tax Digital for VAT will make life even more difficult for small businesses, given their scarce resources to devote to preparing for the change. If HMRC insists on mandating Making Tax Digital for VAT, it has a duty to support small businesses with its implementation. So far, HMRC appears to have neglected this duty.”

Lords committee warns of “huge under-preparedness” ahead of Making Tax Digital

With Making Tax Digital (MTD) for VAT due to be rolled out in less than six months’ time, Lords have warned that there is “overwhelming evidence” indicating that businesses are still “under-prepared.” Continue reading Lords committee warns of “huge under-preparedness” ahead of Making Tax Digital

HMRC finally launches MTD communications plan and simplified guidance

With only six months left until the launch of Making Tax Digital for VAT, HM Revenue & Customs (HMRC) has finally begun sharing information with businesses about the new regime.

While accountants and professional advisers across the UK have been making clients aware of the new digital system for more than two years, the nation’s official tax authority has remained fairly quiet on what has been described as one of the biggest changes to taxation in the last 70 years.

However, in mid-September HMRC finally began making businesses aware of their plans, initially posting a tweet linking to a new webpage entitled Making Tax Digital: How VAT businesses and other VAT entities can get ready.

The new webpage provides simplified guidance to businesses, outlining the criteria for businesses that will be mandated to join the scheme i.e. those registered for VAT with a taxable turnover above the VAT registration threshold (£85,000).

According to AccountingWEB, HMRC has revealed that it has further plans to increase its social media and public relations activity around MTD, as well as directly contacting those businesses affected via post.

HMRC also confirmed that it will publish details of the compliant VAT reporting products later this year when the current private pilot becomes public. A list of software companies currently working with HMRC is, however, already available here.

Howard Worth are holding free Making Tax Digital events, the next one of these is on the 21st of November. You can find out more and book a place at the event by clicking on the link below.

Book event now (21st November)

Link: Making Tax Digital: how VAT businesses and other VAT entities can get ready.

New penalty regimes – what are they and how could they affect you?

New penalty regimes – what are they and how could they affect you?

The Treasury and HMRC have recently announced in the draft Finance Bill 2018-19 that there will be changes to penalties for taxpayers who are late submitting tax and VAT returns and/or pay tax and/or VAT late. They have also confirmed this new framework will be in effect for Making Tax Digital (“MTD”) for VAT from April 2019.

The new penalty system is quite different to what is currently in place.

Current System for Tax Submissions –

In general, we have been used to the following penalties affecting the late submission of returns for most taxes:

  • Failure to submit by the filing date – £100
  • Failure continues three months after the filing date – £10 per day for a period up to 90 days (maximum £900),
  • Failure still continues six months after the filing date – the greater of £300 or 5% of the tax liability shown on the return
  • Failure still continues after 12 months – the greater of £300 or a relevant percentage (ranging from 5% to 200% dependant on the taxpayers behaviour behind the failure) of the tax liability shown on the return.

Current System for VAT Submissions –

For VAT returns, default surcharges ranging from 2% to 15% of the VAT liability* from the return are levied, depending on the number of defaults made during a VAT year. Default surcharge is not usually charged on a first default by a taxpayer.

Under the new System –

A harmonisation of penalties for income tax and VAT submissions, which will levy a penalty based on a taxpayer exceeding a set points threshold over a period of time. A taxpayer will automatically receive a point every time they fail to make a return on time.

Points will expire over a period of time (expected after 2 years) and will expire for good compliance.

Thresholds range from 2 points for annual returns to 5 points for monthly returns. The financial value of the penalties have yet to be confirmed.

Current penalties for late TAX payments

For late payment of income tax – late payment surcharge is levied dependant on the number of days and the amount of tax overdue as follows:

  • 30 days overdue – 5% of the tax overdue
  • 6 months overdue – a further 5% of the tax overdue
  • 12 months overdue – a further 5% of the tax overdue

For late payment of VAT – default surcharge is levied as explained above.*

Under the New System

A two charge model, based on the degree of lateness, will be introduced and will take effect from 1 April 2020 for VAT, with other taxes to be confirmed by HMRC. The charges are as follows: 

First Charge:

  • If a payment or Time to Pay Arrangement (“TTPA”) is made or treated as made within 15 days of the due date – no penalty is payable/penalty is suspended where TTPA agreed.
  • After 16 days – the penalty will be based on a percentage of the tax outstanding.

Second Charge:

  • After 31 days, further penalties apply.

What about MTD for VAT?

Submissions made for MTD for VAT will also be included under the late submission regime so, businesses who are obliged to submit their VAT returns under MTD will still be caught out by the new rules if returns are not submitted on time. Taxpayers may also be penalised for failure to keep digital records which although is separate and unique to MTD for VAT, will also be applicable for those VAT registered businesses.

What should you do to prepare?

Clients should be aware that they need to make their payments and submissions of returns in good time of their due date, as failure could result in greater penalties than previously. So failures could be costly, although for MTD, an initial grace period for submissions may mitigate penalties in the first year of familiarisation. However, regardless of this grace period for submissions, penalties and their subsequent fees would still be payable for late payments. 

If you have any questions regarding penalties for late submissions or payments of Tax or VAT, please contact Jo Hamilton, Tax Manager on 01606 369000 or email

Posted in MTD

MTD for VAT clarified in new communication from HMRC

HM Revenue & Customs (HMRC) has finally issued a new notice on Making Tax Digital for VAT in which it has clarified many of the questions that businesses had.

VAT notice 700/22: Making Tax Digital for VAT has been created to act as a point-by-point guide to the new regime and includes new advice from HMRC to help fill the gaps where the policy has previously been unclear.

Within the document, HMRC confirms that VAT-registered businesses with annual VATable turnover under the VAT registration threshold (currently £85,000) do not have to comply with MTD, but can voluntarily sign up by informing the tax authority in writing.

Exemptions will also be offered to businesses on the grounds of religion, insolvency, or because it is not reasonably practicable to use digital tools.

Exempt companies will have to contact the general VAT helpline to ask HMRC to approve the exemption or seek “digital assistance”.

HMRC has also confirmed the information that each business will need to submit in regards to each VATable supply made by the business, this includes:

  • time of supply (tax point)
  • value of the supply (net value excluding VAT)
  • rate of VAT charged.

Partially exempt businesses or those that use a VAT scheme may not be able to report how much VAT they can reclaim on each individual invoice. In this instance they can record:

  • all the VAT paid; or
  • none of the VAT; or
  • the estimated amount of the recoverable VAT.

Once the partial exemption or other scheme calculation is completed, an adjustment will be made to the digital VAT records.

Some permanent information about the business must also be recorded digitally, such as the name, address, VAT number and any VAT accounting scheme used.

However, businesses will not have to keep a digital image of each purchase invoice.

HMRC has also announced that it has seen demonstrations of various MTD software and tested online accounting products within the HMRC test environment. It has produced a list of tested software, although it is likely that additional providers will be added to this list at a later date.

The VAT notice confirms that the full MTD service won’t be available from HMRC when MTD for VAT goes live in April 2019.

This will mean that businesses won’t be able to submit voluntary updates or supplementary data to support their VAT return initially, although these will be added at a later date.

Link: VAT notice 700/22: Making Tax Digital for VAT

MTD Software – Is your current provider prepared?

If your business is VAT registered and has a turnover above £85k, from April 2019 you will no longer be able to submit your VAT return online – you will need to do this with compliant software that works with HMRC’s new Making Tax Digital system. Do you know if your existing software will work next year when you need to complete your VAT return?

In HMRC’s latest update they have said that over 130 software providers indicated that they are interested in providing software for Making Tax Digital for VAT. Over 35 of these have said their software will be ready during the first phase of the pilot in which HMRC is testing the service with small numbers of invited businesses and agents. The pilot will be opened up to allow more businesses and agents to join later this year.

The following 18 software suppliers have both:

  • tested their products in HMRC’s test environment
  • already demonstrated a prototype of their software to HMRC

If your business is not using one of the above software packages, we are advising that you contact your existing provider to check on their plans for being MTD compliant, the timing, training and costs for the new software.

Howard Worth has been preparing for the implementation of Making Tax Digital for some time now and is working with a number of the software providers above. If you have any questions regarding your current software and its compatibility, please contact Howard Worth for further advice.

More than two-fifths of small business owners are still unaware of MTD

According to a new study, Making Tax Digital (MTD) is currently one of the biggest concerns for VAT-registered small business owners.

The research, prepared by Intuit QuickBooks, found that more than three-quarters of SME owners found the legislation challenging and difficult to understand.

It also reveals that 70 per cent were struggling to find the right new tools to help them comply, including 63 per cent of owners who weren’t sure which cloud-based software they would use.

Other concerns about MTD highlighted in the survey by SMEs include finding the additional time and managing the additional work.

This study shows that few SMEs are ready for the new MTD regime, which is due to come into effect in April 2019.

Under the current rules, VAT registered businesses with turnovers exceeding £85,000 will be required to maintain a digital record of their VAT transactions and submit their VAT returns using MTD-compliant software on a quarterly basis.

Worryingly nearly half (41 per cent) of small business owners are still unaware of MTD, with a further 22 per cent aware of what it is, but only planning to file taxes digitally if they are likely to incur financial penalties.

Accountants have also cited client education as their top concern in the lead up to MTD, with 29 per cent of those surveyed having concerns. This came just ahead of adapting their own practice to comply with MTD (27 per cent), and training clients on online software (27 per cent).

Link: Accountants to play MTD teaching role