The Making Tax Digital (MTD) rules became law for VAT periods starting on or after 1 April 2019. MTD registration requires VAT-registered businesses with taxable turnover over £85,000 to keep their VAT records digitally. They must also submit their VAT return direct from their Making Tax Digital-compatible software. The MTD registration process is progressing well according to HMRC official communications, but there are still plenty of businesses that need to sign up.
Most VAT registered businesses submit VAT returns quarterly. HMRC refers to the different quarters as “Staggers”. The three stagger groups are as follows:
Stagger 1 is the first group to be caught by MTD for quarterly VAT returns. The deadline for filing stagger 1 VAT returns was 7th August 2019.
HMRC reports that “In the period leading up to the stagger 1 filing deadline on 7 August the service performed well, handling high volumes of traffic. Over 60,000 submissions were filed per day at peak times and 19 businesses even filed their returns in the minute before midnight.“
HMRC will now be writing to the stagger 1 businesses who did not sign up and file their return by 7 August to encourage them to join as soon as possible. They expect numbers to increase significantly in the coming weeks as a result.
Some businesses are already using software for their accounts and VAT returns, but please be aware that you still need to actively sign up for Making Tax Digital to enable your software to be MTD compliant. This means that even if you have already been using Xero to submit your VAT returns, unless you sign up for MTD with HMRC and also change your VAT settings in Xero, you will not be MTD compliant.
Businesses on this return period have a filing deadline of 7 September 2019. Unless you signed up in advance of April 2019 VAT return, this will be your first MTD return on stagger 2. If you are not already signed up for Direct Debit payments (DD), we recommend that you do this before you sign up for MTD.
All businesses affected by MTD have to either sign themselves up or have an agent sign them up on their behalf. This is not automatic and HMRC are not signing businesses up.
If you are already signed up for DD there is nothing to stop you registering for MTD as soon as possible. Businesses on stagger 2 should register for MTD no later than 27th August 2019. Where your annual turnover is above £85,000 you will not be able to cancel your MTD registration. You must ensure that you have compatible software in place before you convert to MTD.
HMRC deployed additional staff to the helpline in late July 2019 in anticipation of a peak in demand in advance of the 7 August deadline. They report an average wait during that week of five minutes, but our experience is that the system is still hanging up in the process of allocating an HMRC agent to the call.
There are still several bugs in the HMRC systems, including multiple VAT returns being requested for the same period. These errors must be referred to the MTD technical team and currently still unresolved after more than a month. Businesses and tax agents have no direct access to the MTD technical team so it can feel like the plot of Brazil at times.
As at 7 August 76% of VAT registered businesses above the threshold in stagger 1 had signed up from MTD. HMRC have given a public commitment to take a light touch approach to digital record keeping and filing penalties during the first year of MTD. Sanctions will remain possible in cases of deliberate non-compliance.
The HMRC focus during the current period has been to support businesses moving to MTD to get it right, not to unnecessarily penalise businesses who are doing their best to make the transition. During this first year, filing or record-keeping penalties will not be issued to businesses doing their best to comply.
This does not mean that you can use bridging software and avoid the requirement to keep digital records. Bridging software can be used in conjunction with spreadsheet records, but our recommendation is to use Xero software and have all your records linked to the VAT return digitally.
We have been signing business up to MTD and filing MTD VAT returns from the December 2018 VAT returns. All our existing clients who were required to sign up to MTD already had their MTD registration and MTD VAT returns filed by March / April 2019.
We can ensure that you are signed up to MTD and have the correct software and systems in place to comply with MTD requirements. Alterledger is a Xero Migration specialist practice so you can have the confidence that if we need to move you from another accounting system (e.g. spreadsheets / manual records) we can do this with the minimum of disruption to your business.
If you are an existing customer of Alterledger and know someone that needs our help, don’t forget that you and they could get up to £100 from us as a referral discount.
Use the contact form below to contact Alterledger and get yourself MTD compliant!
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