VAT and Making Tax Digital (MTD) – Don’t risk a penalty

You may have recently received a letter from HMRC informing you that from Tuesday 1 November 2022, you will no longer be able to use your VAT online services account to submit VAT returns.

You must sign up for MTD for VAT (by law)

Most businesses are now filing their VAT returns through MTD compatible software. However, if you have yet to sign up for MTD you must now, by law, use MTD compatible software to keep your VAT records and file your VAT returns. Failure to do so can lead to a penalty of up to £400 per VAT return in addition to daily penalties of between £5 and £15 for failure to keep digital records, or failure to use ‘digital links’ to transfer or exchange data between different pieces of software.

Although a new penalties system is due to come into effect next year the penalties currently being imposed for non- compliance with MTD requirements are based on the existing penalty legislation which has been in place for some time, although not widely publicised by HMRC.

• Read more: MTD and VAT - Making Tax Digital in 2022

How to avoid a penalty from HMRC

To help you avoid a penalty, HMRC have produced a fact sheet (CC/FS69) which clarifies that you must:

• File your VAT return using functional compatible software – you can find details of MTD compatible software on the GOV.UK website. You may be able to get a discount of 50% on compatible accounting software through the UK Governments Help to Grow: Digital scheme.
• Keep records digitally – a list of records which need to be kept digitally is included in the factsheet.
• Use the checking functions within your software – use of the checking functions helps to reduce the risk of errors on your VAT return. Penalties are imposed for submitting an incorrect VAT return and HMRC may view not using the checking function as ‘deliberate’ or at least ‘careless’ behaviour for penalty purposes thus increasing the penalty charged. 
• Sign up for MTD and link your software to the MTD portal – there is help and guidance on the GOV.UK website but HMRC advise you get in touch with your accountant to help guide you through the process.

Here at Shorts we are able to submit VAT returns on your behalf through our own agent MTD account. Please get in touch if this is an option you would like to consider.

Learn more: VAT Advisory Services