What is Making Tax Digital (MTD)?
By April 2019 all VAT registered businesses in the UK above the VAT threshold (£85,000) will need to switch to a digital tax system and report VAT quarterly using HM Revenue & Customs (HMRC) complaint online accounting software.
MTD is designed to bring the UK tax system into the 21st century by providing businesses with a streamlined, digital system to maintain their tax records and provide accurate information to HMRC.
Worryingly, research carried out recently by the Institute of Chartered Accountants in England and Wales (ICAEW) suggested that over 40 per cent of UK businesses are unaware of MTD for VAT.
What happens if you do not comply?
HMRC has announced a pair of penalty systems for late filing and late payment under MTD for VAT, which is due to come into effect in April 2019.
How will the points-based penalty system work?
Late filing will result in penalty points, which will accrue on the basis of how late the filing is and how many filings have been submitted late. After four late submissions, a penalty will be charged for each late submission. Points will be wiped after four compliant submissions.
A separate system will apply to late payments, if the VAT is paid more than 15 days late, a 2.5 per cent penalty will apply, and then doubling to five per cent after 30 days, with daily penalties charged thereafter.
If a payment is made or a Time to Pay (TTP) agreement has been sought between 16 and 30 days after the original due date, half a penalty fine will be charged.
Will there be any leeway?
There will be a ‘soft landing’ period for late submissions during the first year of MTD for VAT, but this will not apply to the requirement for digital record keeping, which must be in place immediately.
Will this apply to any other taxes?
The Government confirmed last year that MTD will not apply to other taxes until 2020 at the earliest.
If you haven’t already started on your MTD journey, now is the time to act. To find out more about how McGills Accountants can help you with online accounting and Making Tax Digital, please contact us today on 01285 652128 or email firstname.lastname@example.org.