What do we know and what have we learned about Making Tax Digital? We are getting up to the one-year anniversary of the final mandate for the programme, and all firms that are registered for VAT are required to comply.
We sat down with Sage, to get his insights on what businesses need to look out for now, including key dates, possible penalties, and the importance of not leaving returns until the last minute.
What has happened since MTD for VAT was mandated to smaller VAT businesses on 1 April 2022?
We are aware that Making Tax Digital is the law that will bring about the most significant transformation to the tax systems of the UK in a generation. When it was first introduced in 2015, the goal was to completely digitalize all types of tax returns by the year 2020. However, the intended timeframe was changed, and the programme was only officially launched with the first mandate in April 2019 (for VAT-registered enterprises that had taxable revenue of more than £85,000).
Now, the first wave of MTD adjustments is drawing to a close; the mandate for the remaining VAT-registered population took effect in April of this year, bringing the total number of people affected by this phase of changes to 100%. Basically, as of right now, it is a legal requirement for all organisations who are registered for VAT to comply with MTD standards.
The mandate is a legal requirement; but, if any impacted company has not yet complied with the MTD standards for digital record-keeping and digital VAT return submissions, that gap is going to be closed as we get closer to the closing of the VAT online accounts.
So, when are the VAT online accounts closing?
After November 1st, companies will no longer be able to utilise their current VAT online account to submit their quarterly or monthly VAT returns. This change will take effect immediately. To maintain their VAT records and submit their VAT returns, firms who are registered for VAT are now required to join up for Making Tax Digital (MTD) and utilise software that is compatible with MTD.
Companies who have not yet registered for Making Tax Digital and do not have software that is compatible with MTD as of November are being contacted by HMRC as of August 24. Until the 15th of May in 2023, companies who submit yearly returns will be able to continue using their VAT online account.
How are these businesses being informed of this important change?
As was said, HMRC is now implementing a communications strategy, which began on the 24th of August.
Businesses that are required to comply with the new legislation but have not yet done so are likely to receive a series of emails or letters informing them of the obligations. These communications will explain how to comply with the changes and what will happen if they do not.
After November 1st, taxpayers who try to access their VAT online account will see a message informing them that quarterly and monthly filing options are no longer accessible.
Does that mean there will be any penalties for businesses that do not comply with Making Tax Digital?
If a company does not satisfy its requirements to submit their VAT return to HMRC by the specified deadline, then the company will be subject to new penalties for late submission.
They will instead be given a particular amount of points each time they miss a deadline, and will only be subject to a penalty if they reach a certain level. This is in place of the HMRC’s usual practise of issuing an automatic penalty for every late submission.
Any VAT submissions made for tax periods beginning on or after the 1st of January, 2023 will be subject to the new penalty structure.
On this page, you can find out more information about the new punishment system and how it works.
In addition, if a company that is registered for VAT files its VAT returns but does not utilise software that is compatible with MTD, the company may be subject to a penalty known as “Filing Through the Incorrect Channel” (FTIC).
The amount that can be charged to businesses is determined by how much money they make. Because the affected companies’ annual revenue will be less than one hundred thousand pounds, they will be subject to a penalty of one hundred pounds for each erroneous report they submit once the mandate goes into effect on April 1, 2022.
This all looks like a big change to small businesses. Are there any benefits to MTD then?
When it comes to tax management, I have an understanding of how hard it may be to modify one’s methods of functioning. The vast majority of individuals are content with the way that they now go about doing things, particularly owners of very small businesses who have to juggle a number of different responsibilities while also trying to ensure that their company is successful.
However, the implementation of digital accounting and the Making Tax Digital initiative both confer several advantages on the individual taxpayer. The use of digital records and software helps to cut down on typical errors, ensuring that taxpayers are neither overcharged or undercharged. It does this by adding automation and error checks, both of which assist enhance accuracy and lower the likelihood of errors occurring.
Accounting software is designed to automate and optimise repetitive administrative duties, which helps free up time. This is something that is extremely vital for any organisation, but particularly for the smaller businesses.
In the end, MTD was established to make tax administration more effective, more efficient, and simpler for people to get their taxes in the appropriate ballpark.
Any final thoughts?
Following the termination of the VAT online accounts, firms who file quarterly will have their post-closure submission deadlines on November 7th, December 7th, and January 7th, respectively. My recommendation is that you do not put off taking care of business until the very last minute. Remember the following procedure in its four stages:
Step 1: Select software that is compatible with MTD, such as Sage Accounting.
Step 2: Prior to authenticating your programme with HMRC, double check the VAT options in the software.
Step 3: Maintain digital recordings of all relevant information for current and future VAT returns.
Step 4: Enroll in Making Tax Digital at least seven days before the deadline for your return, make sure your software is compatible with Making Tax Digital, and send your VAT returns to HMRC immediately.
Keep in mind that MTD is not an automated process. Even if your company currently utilises software to store records and to file VAT returns online, you still need to remember to sign up for MTD before you file your next return. This is something that needs to be done before you file your next return.
I appreciate it, Fabiano. According to the feedback we’ve received from readers, the Making Tax Digital initiative has significantly contributed to the streamlining of the tax process. This is especially true when they are able to utilise accounting software that can link with their bank account, so that they may obtain a complete picture of the financial state of their company.
This article was written as part of a campaign with Sage