After tests, pilots and amid continuing controversy, Making Tax Digital (MTD) for VAT went live on 1 April.
All VAT registered businesses above the £85,000 threshold are now required to keep their records digitally and submit their VAT return via compatible software. HMRC stated that around 100,000 had registered by the April Fool’s deadline out of an estimated 1.2 million businesses affected.
It’s worth remembering that 1 April marked the requirement to keep digital records, not to sign up for MTD itself. Once a business is signed up, it can no longer submit VAT returns through previous methods, such as typing figures into the portal. For businesses who submit VAT returns on a calendar quarter basis, signing up earlier than necessary could mean HMRC will expect the return to be submitted via MTD software, which the business may not be ready for.
With the first quarterly VAT return affected by MTD the June 2019 return, HMRC is taking a relaxed line on any penalties for the first year of the roll out as companies become more familiar with the requirements. Where businesses are doing their best to comply with MTD, filing and record keeping penalties may not be issued.
Where a business has not yet signed up, it should have begun to keep its records digitally for the next VAT period starting on or after 1 April. If they are using software, this must be MTD-compatible. They can then sign up to the MTD service and have their software authorised.
Companies unfamiliar with software systems can use bridging products that will work with spreadsheets and HMRC has a list of those available. Any existing exemptions from online VAT filing will be maintained, while those unable to register for the new regime on grounds of age, disability, religion or location can apply to be exempt.
HMRC issued additional guidance prior to the launch. Where more than one product is used to keep digital records, these must be digitally linked. This is defined as a transfer or exchange of data between products and could include importing and exporting files, linking cells in spreadsheets and uploading and downloading files. These links between products must be in place by 31 March 2020, except for businesses who have secured a deferral from HMRC which have until 30 September 2020.
Regardless of where they are in their digital compliance and software upgrades, businesses should still aim to pay their VAT on time.