Whether you’re a small business that has just registered for VAT or are an existing company that has been submitting VAT returns for years, it’s important to remain up-to-date with compliance procedures changes as and when they pop up. We live in an increasingly digitised world, and businesses are becoming more tech savvy, in an attempt to remain with the ever-changing times.
The leading tax authority in the UK, HM Revenue & Customs (HMRC), is also taking steps into modernizing their systems, in order to make it easier for companies to submit their returns and reports, and in an effort to keep a closer eye on businesses of all shapes and sizes. MTD for VAT is part of that ongoing change and will be explained in full here.
What is MTD for VAT?
‘Making Tax Digital’, otherwise known as MTD, is a new legislative rule from HMRC that requires VAT registered companies in the UK operating above the £85 000 VAT threshold to submit their VAT returns via software, as well as to keep those records digitally. This legislation came into effect as of April 2019 and will carry over into 2020 and beyond.
What Does This Rule Mean For My Business?
MTD essentially highlights that you are now required to use an accounting software that is directly linked to the HMRC’s internal systems, when preparing and submitting your business VAT returns. With cross-border transactions and businesses trading all over the world growing exponentially, this is a step to better facilitate compliance and a bid for the HMRC to better manage how they collect VAT returns, issue refunds, and ensure that companies are staying compliant from year to year.
Gotcha, I’m Jumping On This Now. When is the First MTD Due?
The rule that has been set out is fairly straightforward. As the MTD rule came into effect from the 1st of April 2019, you need to start following it from the first day of your first VAT period that starts on or after the initiation date. If you are confused about this, it’s worth chatting to an expert about it, to make sure you remain on track from day one. VATGlobal, for example, deals with these kinds of questions and more daily, as they service in the tens of thousands of customers around the world. Don’t get left behind, as your compliance will suffer as a result.
I’ve Heard Some Businesses Are Exempt from MTD?
The HMRC did initially set out a “deferred” list, which highlighted specific business types that are exempt from MTD for VAT rules. This rule was only for select business types,
who had up until October of 2019 start submitting MTD for VAT. As this deadline has now passed, and we are gearing up for the 2020’s, you shouldn’t bank on exemption and make sure that you get compliant as soon as possible, rather than waiting and incurring unnecessary penalties.
Missing MTD for VAT Payments and Deadlines
In the first year, HMRC is taking somewhat of a softer approach to penalties. If you miss submission deadlines, you will receive a letter from them to inform you about this. The same applies for when you haven’t registered for MTD yet. You are encouraged to join the scheme sooner rather than later, especially if you business is earning above the VAT threshold. The penalties in place are related to the gross turnover of your business, increasing exponentially based on how much you are earning. Avoid running into cashflow issues and do your best to remain compliant at all times.
— While this article aims to provide an overview of the technicalities around MTD for VAT, it should not be considered a legal authority on the matter. You are encouraged to speak to an expert if you need more information, or if you have specific questions about the processes mentioned.
Source – VATGlobal (VAT IT Groups registration & compliance division)
Claimable countries & VAT rates
VAT potential calculator
Invoice compliance checklist