On 13th July 2017, HMRC announced Making Tax Digital (MTD). Mandatory for all VAT registered businesses with a turnover above £85,000, it was set to revolutionise quarterly reporting.
It also created a something of a panic among businesses who would be hit by the changes. In particular, those with old accounting systems or – gasp – pen and paper accounts, were suddenly hit with the prospect of having to invest in cloud accounting.
Fast-forward two years, and it appears most have got over that initial hurdle.
Panic? What panic?
According to HMRC, almost three quarters (74%, to be exact) of VAT-registered businesses have signed up for MTD.
HMRC staggered the deadline in order to create a ‘soft landing period’. This required businesses with Vatable sales above the threshold to file their monthly return via a compliant system in April.
Businesses that file quarterly could wait until September, and HMRC has revealed that over 230,000 mandated businesses joined the scheme before that second deadline.
How many missed it? And what’s the penalty?
It’s believed that around 80,000 businesses missed the staggered deadlines, but the good news is they’re unlikely to receive a significant slap across the wrist from HMRC.
Instead, HMRC will write to the businesses that missed the deadline to remind them of their obligations. Penalties probably won’t be issued while the light touch approach to MTD continues.
When does the light touch end? 1st April 2020 – so it’s important your business is absent of excuses by that time if you’re currently struggling with MTD.
A friendlier HMRC
HMRC often gets a bad rap for being a little heavy handed with businesses who inadvertently fall behind on their tax obligations, but MTD demonstrates the more patient side of the Revenue.
As Jim Harra, deputy chief executive at HMRC, explains, “Our ambition is to help businesses moving to MTD to get it right, not to penalise them.
“HMRC’s decision not to enforce penalties will help businesses transition to MTD without fear of getting it wrong.”
This approach appears to be working, too. It’s thought that HMRC’s reminder letters are having the intended effect, by increasing the number of stagger-one businesses signing up to MTD for VAT.
By 7th August, around 120,000 firms had missed the stagger-one deadline, but since then, and with the help of HMRC’s gentle reminders, 5% have joined the scheme.
In fact, over 80% of the total mandated population is signed up to MTD for VAT and is actively using the service. When you bear in mind the significance of this change for some businesses, that’s impressive stuff, and indicates that MTD isn’t really the burden many thought it would be from the outset.
5 essential things to know about MTD
So, if you’re yet to jump on MTD or have missed one of the deadlines, don’t panic. You still have time to take advantage of HMRC’s goodwill on the matter.
That goodwill won’t last forever, though, so keep these five essential MTD facts in mind:
- Annual tax returns will become a thing of the past. The point of MTD is to make bureaucratic form filling no longer a blot on everyone’s business calendar.
- MTD has started, now. Those two staggered deadlines are in place for a reason but can’t be ignored forever. MTD is underway as you read this blog and if your business is VAT-registered and turning over more than £85K, you need to get cracking.
- You need the right software. HMRC will expect to receive your VAT returns digitally, and that can only happen with an approved software vendor.
- Updates will happen in real time. This is intended to reduce errors and eliminate build-ups of tax due to HMRC.
- There will be penalties. HMRC might be taking a softly-softly approach at the moment, but penalties will be issued in future for businesses that don’t follow the rules.
If you need help with any of the points above, or just want some general guidance on MTD, get in touch with the helpful Chandlers team today.