Category Archives: Making Tax Digital

Should HMRC delay Making Tax Digital for VAT?

The Lords Economic Affairs Committee says the Government need to listen to small businesses and delay the rollout of Making Tax Digital for VAT programme by at least a year.

Recently, the House of Lords’ Economic Affairs Committee has called for HM Revenue & Customs (HMRC) to halt the deployment of its Making Tax Digital for VAT programme.

A report conducted by the committee found that small businesses are unlikely to be ready for April 2019 and as a result, HMRC must begin to listen.

“Nearly 40 per cent of affected businesses have not heard of Making Tax Digital, let alone have started to prepare for a substantial change to their accounting processes,” the report said.

“HMRC is alone in its confidence that all one million businesses will be ready for Making Tax Digital for VAT in April 2019. They have underestimated the time for research, planning, training and system changes that some businesses will need.”

The Economic Affairs Committee report highlighted that HMRC must treat small businesses fairly, and the April 2019 deadline could lead to “unjustifiable risks” for businesses.

The committee also raised concerns about the software required by businesses to comply with the programme, emphasising that there had yet to see any free software products offered by HMRC.

The committee explained: “The emerging software market appears difficult to navigate. It is unfair to expect businesses to make choices about their accounting software without a better understanding of the future Making Tax Digital regime.”

Committee Chairman, Lord Forsyth said HMRC had “neglected its responsibility to support small businesses” by implementing the programme.

“Small businesses will not be ready for this significant change to their practices if it is introduced on 1 April, particularly with Brexit taking place three days earlier. The Government must delay its introduction.”

The committee has recommended that instead of making the programme mandatory from April, HMRC should allow businesses to join on a voluntary basis for at least a year. This ensures companies are ready, but also it allows the software market to develop and ensure that the department’s systems are “fully and appropriately tested”.

Lord Forsyth said: “Making Tax Digital for VAT will make life even more difficult for small businesses, given their scarce resources to devote to preparing for the change. If HMRC insists on mandating Making Tax Digital for VAT, it has a duty to support small businesses with its implementation. So far, HMRC appears to have neglected this duty.”

What are the consequences of doing nothing about Making Tax Digital?

What is Making Tax Digital (MTD)?

By April 2019 all VAT registered businesses in the UK above the VAT threshold (£85,000) will need to switch to a digital tax system and report VAT quarterly using HM Revenue & Customs (HMRC) complaint online accounting software.

MTD is designed to bring the UK tax system into the 21st century by providing businesses with a streamlined, digital system to maintain their tax records and provide accurate information to HMRC.

Worryingly, research carried out recently by the Institute of Chartered Accountants in England and Wales (ICAEW) suggested that over 40 per cent of UK businesses are unaware of MTD for VAT.

What happens if you do not comply?

HMRC has announced a pair of penalty systems for late filing and late payment under MTD for VAT, which is due to come into effect in April 2019.

How will the points-based penalty system work?

Late filing will result in penalty points, which will accrue on the basis of how late the filing is and how many filings have been submitted late. After four late submissions, a penalty will be charged for each late submission. Points will be wiped after four compliant submissions.

A separate system will apply to late payments, if the VAT is paid more than 15 days late, a 2.5 per cent penalty will apply, and then doubling to five per cent after 30 days, with daily penalties charged thereafter.

If a payment is made or a Time to Pay (TTP) agreement has been sought between 16 and 30 days after the original due date, half a penalty fine will be charged.

Will there be any leeway? 

There will be a ‘soft landing’ period for late submissions during the first year of MTD for VAT, but this will not apply to the requirement for digital record keeping, which must be in place immediately.

Will this apply to any other taxes?

The Government confirmed last year that MTD will not apply to other taxes until 2020 at the earliest.

If you haven’t already started on your MTD journey, now is the time to act. To find out more about how Glazers Chartered Accountants can help you with online accounting and Making Tax Digital, please contact us today on 020 8458 7427 or email