Penalty warning for early enrollers in Making Tax Digital

Businesses signed up for Making Tax Digital (MTD) but yet to file their latest VAT return must act urgently to avoid possible penalties, the Association of Taxation Technicians (ATT) is warning.

While 1 April 2019 marked the introduction of MTD, it was not the point at which those businesses affected need to sign up to MTD.

The sign up process can, and in many cases should, be completed at a later date. Businesses should only sign up for MTD once their last ‘pre-MTD’ VAT return has been filed using the existing Government Gateway.

Jon Stride, Co-Chair of the ATT’s Technical Steering Group, said: “Once a business has signed up to Making Tax Digital (MTD) it must submit all VAT returns – including those for periods starting before 1 April 2019, using MTD-compliant software. This could cause problems if the business signs up to MTD before submitting its final return under the pre-MTD rules.”

For example, a business which submits VAT returns on a calendar quarter basis will have to submit their VAT return for the quarter ended 31 March 2019 by 7 May 2019. If they have already signed up to MTD before submitting this VAT return then, even though the period predates the introduction of MTD, it must be submitted using MTD-compatible software or HMRC’s systems will not accept it. If the business has not planned for this they may encounter problems when it comes to meeting the submission deadline.

There is no soft landing with regards to MTD penalties, warns the ATT. HMRC have said they will apply a light touch approach in the first year of MTD, but only in relation to record keeping penalties where the business has made a genuine effort to comply.

Stride added: “HMRC have been very clear that they want businesses to continue to pay their VAT on time under MTD, even where they have problems filing or keeping digital records. HMRC’s light touch approach to penalties does not extend to the payment of VAT liabilities.

“Businesses which do not pay their VAT, or pay late, remain exposed to penalties in the normal way.

“We strongly recommend that those businesses who have signed up too early and now find that they are struggling to file their returns under MTD should prioritise paying their VAT on time to ensure that they do not receive a penalty.

“They should contact their software provider and/or HMRC as soon as possible to try and resolve their filing problems. It is also advisable to document any problems encountered and collect supporting evidence in case they do incur a penalty which they later wish to appeal.”


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