Is your company registered for VAT and does it present a taxable turnover of £85,000 or more? If so, from the 1 April, 2019, your company needs to comply with the Making VAT Digital regulations. If you do not, you could face penalties of approximately 15 percent of the annual VAT bill.
To date, HMRC has not announced any additional penalties for companies’ non-compliance. The primary issue will be if a taxpayer continues to submit VAT returns utilizing the old system. Unfortunately, due to the VAT returns not being correctly “furnished” this could mean all default late payment surcharges will be applicable even though the taxpayer believes the VAT has been paid within the timeframe and using the correct procedure.
But what does this mean for businesses?
The Electronic Filing Of VAT Returns
Companies will need to change to a new system allowing them to report VAT return data directly to HMRC. For all returns beginning on or after April 1st 2019, the business cannot submit a VAT return utilizing their government’s gateway account.
In this situation, the business must utilize software to communicate with HMRC using the Application Programming Interface or API. If this is not in position, HMRC’s system could prevent submission of the VAT return using standard methods resulting in penalties as high as 15 percent of the VAT amount due.
The Digital Record-Keeping System
All VAT registered taxpayers who are covered by the Making VAT Digital system will no longer be able to maintain any form of manual financial records. For individuals utilizing software and spreadsheets, the digital links need to be in position by April 1st 2020 to transfer the data between all functions. It will not be possible to manually re-key information from one system to another system.
What Is Available From Software Providers And HMRC?
Unfortunately, there is not much assurance or guidance from the software providers or HMRC. HMRC has formulated a public notice which details the primary changes to legislation, a schedule and what will be expected from these changes.
A small pilot trail has been conducted by HMRC involving approximately sixty of the main software providers. Companies will be able to choose whether or not to be included in further trials in October.
Some movement between software suppliers has been noticed. Certain providers have created API-enabled spreadsheets allowing them to connect their business records with the HMRC VAT return system. Of course, this is a first fix to the system.
The larger providers confirm that the Making VAT Digital regulations are being treated as priority information with a patch to be available in good time.
All providers involved in the initial trial have undergone tests and submissions. It is understood that as from July all tests will be conducted using more complex aspects, such as VAT group reporting and partial exemption.
What Can People Do At The Moment?
While the lack of detail in the system can make companies feel as if there is little to be done before the deadline, it is worthwhile ticking off the following items to ensure you are in a good position when HMRC release further information:
- Learn how the Making VAT Digital regulations affect your company, and ensure the team is trained so they comprehend all of the requirements.
- Ensure all software utilized to produce the company’s VAT return figures are API-enabled before April 2019. The software provider can update you were required. On the other hand, you can receive an API-enabled spreadsheet to use as an interim method as these are entering the market and should be available for development in the following months.
- Ensure all areas of the company’s record-keeping is digital and the VAT returns are created utilizing these digital methods. For companies using traditional spreadsheet measures or manual records, it is recommended that you opt for software measures.
What Are The Exemptions Available?
While there are exemptions available for a minority of companies, the extent of the Making VAT Digital regulations make it essential to assess whether or not your company falls in this group. For instance, charities and academies can be exempt.
The key to applicable exemptions for VAT-registered companies showing a turnover of over £85,000 or above is as follows. These are the VAT rates for that. Many businesses registered for VAT will fall under this turnover threshold; therefore, they could opt out and continue as they do at the moment.