From 1 November 2022 all businesses, unless you fall into one of the limited exceptions below, will be required to sign up for Making Tax Digital (MTD) and submit VAT returns using Making Tax Digital compatible software.
A failure to do so will mean that most businesses submitting VAT returns on a quarterly or monthly basis will be unable to do so as the existing VAT online account can no longer be used to submit VAT returns from this date.
HMRC has recently published details of the penalties they will charge for those businesses that fail to comply with Making Tax Digital.
HMRC may charge up to £400 for each VAT return filed dependent on your annual taxable turnover (VAT exclusive):
If your software has checking functions, HMRC expect you to use these. It has not been made clear yet as to how this will be applied but HMRC’s guidance does state that a penalty of up to 100% of the VAT you owe could be levied if your return is submitted with errors and the checks were not applied. We have yet to see this applied in practice but suggests it might be something that HMRC start to look at in more detail going forward.
To date, HMRC’s move to MTD for VAT has affected UK VAT registered businesses with an annual turnover above the VAT registration threshold of £85,000:
Our previous article Making Tax Digital for VAT- the end of the ‘soft landing’ period for businesses, provides further details on the use of digital links.
HMRC requires the following information to be kept digitally:
Your business name
Your business address
Your VAT registration number
Any VAT accounting schemes that you use
For each supply you must record the:
Time of supply (tax point)
The value of the supply (the net value, excluding VAT)
The rate of VAT charged
Amount of input tax you will claim
Any adjustments required from calculations made outside of your functional compatible software for any VAT accounting schemes you use.
Any other adjustments you may make, for example input tax restriction, road fuel scale charges etc.
If your software does not record reverse charge transactions, you will need to record these twice: once as a supply made, and a second time as a supply received.
You will also need to keep copies of documents that cover multiple transactions made on behalf of your business, for example those made by employees for petty cash expenses.
N.B. all transactions must be recorded in your electronic account, but you do not need to scan paper records such as invoices or receipts.
From the first VAT period starting on or after 1 April 2022, VAT registered businesses with an annual turnover below the VAT registration threshold (and therefore not already signed up to MTD) were required to sign up for MTD. Please note that this includes self-employed individuals and landlords.
In effect, from the first VAT period starting on or after 1 April 2022, all VAT registered businesses regardless of annual turnover became required to sign up for MTD for VAT and:
MTD is mandatory and, as there is no equivalent ‘soft landing’ period, it is important that you:
If you would like to discuss how the MTD for VAT requirements affect you and what you need to do to ensure you are compliant, please contact Robert Marchant or your usual Crowe contact.
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