Making Tax Digital for VAT has been launched. A lot of tax advisers and businesses are adopting the new measure. Here are some of the frequently asked questions about it.
Shall I Register For Making Tax Digital Now?
Yes, you can register now but only if you submit your VAT returns every month. If you submit the quarterly returns, your registration falls in the pilot program for now. It’s a good move for you and you can enjoy the available support. However, a lot of people are waiting to join when they have to. It’s likely that other EU countries such as Lithuania, Ireland and Germany, will also make their VAT returns digital.
When Is The Deadline For Registration For Making Tax Digital?
It is when the deadline for your normal VAT return has passed. For instance, a business that chooses to join for the 06/19 VAT return (note that the first quarterly return will be affected) should have registered by 8th May if there is no direct debit and by 15th May if there is a direct debit in place. Keep in mind that the deadline for payment of the last normal return for 03/19 will be 7th May or 10th May if you have made a direct debit.
If you apply too early, you will be shoved into the pilot scheme thus forced to submit under MTD when you are not prepared to do so. Now, any business with monthly returns should register their 04/19 return now. Visit www.gov.uk/guidance/sign-up-for-making-tax-digital-for-vat for more information.
What Happens After Registration For Making Tax Digital?
You will receive an email from HMRC within 72hours. Don’t submit any returns before you get this email confirmation.
Should I Register If My Taxable Turnover Is Below £85,000 And I Am Exempt From Making Tax Digital?
You should proceed normally and submit your VAT returns using the government gateway. You don’t need to notify HMRC in this case.
Let’s take a case where you are an overseas trader and you don’t need to register in MTD until October 2019. However, there is a letter from HMRC requesting you to register by April 2019 because the address in use is your accountant. In this case, you can write to HMRC and inform them of your overseas status then register by October 2019 as advised.
Also, let’s say you are in a VAT group and have been told that you should register as from October, 2019 but haven’t received a formal letter notifying you of the same. Well, you should know that where deferral is acceptable until October 2019, such as VAT groups or charitable trusts, it’s only applicable if there is a formal letter from HMRC. Anyone affected in this case will receive a letter to confirm the same, if they haven’t already. Basically, if you don’t have a letter, there is no deferral necessary. However, if you think you are eligible for a deferral but haven’t received a letter, you can contact HMRC immediately.
Are There Any Issues With HMRC If I Fail To Register For MTD And Start Submitting Returns Immediately?
HMRC has informed everyone that there will be flat penalties on anyone who is liable for MTD but continue using the government gateway. Currently, HMRC can charge a penalty as high as £400 when you file a return electronically without any prior agreement with HMRC.
Such penalties have rarely been used previously but it might be enacted to allow people to file their VAT returns as required using the functional as well as compatible software. However, there is expected to be a soft landing especially in cases where the trader has tried to make reasonable efforts for compliance.
What Is A Digital Link?
Here, a transfer of data is done between software programs electronically, applications or products. There is no need for any manual intervention such as copying information by hand or manual transcription of data between 2 or more pieces of software. A digital link often includes linked cells in the spreadsheets with at least 2 pieces of software involved. There are also linked cells in spreadsheets such as if there’s a formula in one of the sheets that copies the source value in another cells. In that case, the 2 cells are linked.
Other Digital Links Acceptable By HMRC Include:
- a) Emailing a spreadsheet with digital records to a tax agent who will import the data into their software and make calculations such as a partial exemption calculation.
- b) Transferring digital records into a portable device such as a flash drive, pen drive or memory stick. Also, it involves giving the portable device to an agent who will import the data to their software.
- c) CSV import and export, XML as well as upload and download of files.
- d) Automated data transfer
- e) API transfer
What Should I Do If My Supplier Isn’t Compliant?
If you are not capable of upgrading your accounting software to be MTD compliant, you are allowed to use bridging software such as an API enabled spreadsheet. You can prepare your VAT return in an Excel spreadsheet then upload it to the API spreadsheet so you can submit to HMRC. It’s an efficient short term solution if you are not prepared with the MTD software.
What Should I Do If I Use An Agent To Submit My VAT Returns?
You’re allowed to continue doing the same but the agent can register on MTD for you. Tax agents can register for MTD for their clients through the agent’s portal. They should be able to take the Excel spreadsheet and submit to HMRC with their own bridging software but they should issue revised engagement terms.
What If I Can’t Make It Work With The New System?
You need to inform HMRC and keep the communication channels open. Take screenshots of your attempts to file the return to show that you have made reasonable efforts to comply. Pay your VAT liability on time even if you have had issues submitting the return in the first place.
