If you are a VAT-registered business with annual income above the registration threshold (currently £85,000) then you should now be submitting VAT returns through Making Tax Digital (MTD). This requires records to be kept in appropriate computer software and submitted electronically from that software. HMRC maintain a list of software they consider meets these requirements here (tinyurl.com/MTDSoftware).

The first affected returns were those for periods commencing on or after 1 April 2019. Those with June and July VAT quarter ends should already have registered and those with August quarter ends need to register now. Once a business is registered for MTD it will no longer be able to submit VAT returns through the HMRC website. It is therefore important to ensure you have everything in place in good time to avoid the risk of missing the filing deadline entirely. 

Businesses that submitted through the old system despite being required to submit through MTD are already receiving letters from HMRC. The wording of these is somewhat stern, but the letter is clear that no penalty arises from this failure. This is in keeping with HMRC’s declared intention that there will be a “soft landing” with regard to penalties for the first year of MTD. However, the letter goes on to state that failing to file under MTD in future will be considered deliberately failing to comply. It would not be surprising if this was used as an excuse to raise penalties in the near future, so unregistered businesses need to take action now. 

If you have a Direct Debit in place to pay your VAT, you need to wait until the amount for your last filed return has been taken before registering. The Direct Debit should automatically be transferred over to the MTD system, but the transfer process can take up to 72 hours. Direct Debits due in that period will fail, possibly resulting in a VAT default. The consequences of VAT defaults have been covered recently on this page and the online version of that article can be found here (tinyurl.com/HIPVAT). 

If your business is VAT-registered but has annual turnover below the threshold you do not currently have to register for MTD. HMRC have still sent out letters to some businesses in this category but, as stated in those letters, these can be ignored on that basis. It is possible to register voluntarily regardless of turnover level. As MTD is likely to become mandatory for all VAT filing in the not too distant future it may be advisable to take steps now.

It is possible to get exemption from registration for MTD. However, the list of reasons for exemption that HMRC will accept is very narrowly drawn. The following are the officially accepted bases for MTD exemption.

• it’s not reasonably practicable for you to use digital tools to keep your business records or submit your VAT Returns because of age, disability, remoteness of location or for any other reason

• you or your business are subject to an insolvency procedure

• your business is run entirely by practising members of a religious society or order whose beliefs are incompatible with using electronic communications or keeping electronic records

If you believe these apply, you need to contact the HMRC VAT enquiries team (tinyurl.com/VATEnquiries). Otherwise details of how to register for MTD can be found here (tinyurl.com/MTDRegistration)

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