More UK entities preparing to manage VAT digitally

Beginning 1 October, another group of UK businesses and organisations will have to start managing their value-added-tax (VAT) records and filings digitally because the automatic six-month extension they were given will expire.

The deadline for most businesses to start adhering to the new policy was 1 April 2019, but HM Revenue and Customs extended it to 1 October for certain taxpayers that have “more complex requirements”, notifying them of the extension by letter. “If you have not received a letter, you’re not in the deferral group,” according to HMRC.

HMRC’s Making Tax Digital policy, also known as MTD, requires businesses with revenue above the VAT threshold, £85,000 ($106,000), to maintain digital records for VAT and submit returns digitally. This requires using MTD-compatible software that can integrate with HMRC systems to exchange data.

The upcoming 1 October deadline applies to (as described by HMRC): “trusts, ‘not for profit’ organisations that are not set up as a company, VAT divisions, VAT groups, those public sector entities required to provide additional information on their VAT return [such as government departments and NHS Trusts], local authorities, public corporations, traders based overseas, those required to make payments on account and annual accounting scheme users”.

The government says it expects MTD to improve tax collection and that taxpayers will benefit as well, pointing out that using software for day-to-day business recordkeeping will reduce errors, for one thing.

However, the changes present a challenge for many small businesses and organisations. Business groups, including the British Chambers of Commerce, had asked for a delay of the MTD mandate, emphasising that businesses need to simultaneously prepare for the potential effects of Britain’s leaving the EU.

In response to such concerns, HMRC announced that it “will take a light touch approach” to imposing penalties during the first year of the new mandate “where businesses are doing their best to comply with MTD”, later clarifying that penalties will be enforced “in cases of deliberate non-compliance” and to safeguard VAT revenue.

Responding to media reports, HMRC has called it “not correct” that many businesses subject to the 1 April deadline were unaware MTD was happening or what it required.

While plans exist to eventually expand MTD, the government has made clear that the digital mandate will not be extended to any new taxes or businesses until at least 2021.

For more information about the digital VAT requirements, visit gov.uk.

— Dave Strausfeld, J.D., (David.Strausfeld@aicpa-cima.com) is an FM magazine senior editor.