VAT: 120,000 firms fail to sign up before deadline

19th Aug 2019
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HMRC has revealed 120,000 firms failed to sign up for MTD before the first submission deadline.

Normally, businesses would have faced a fine of between £100 and £400 for not submitting a VAT return by 7 August through MTD software, but they will not this time. Officials reiterated they’re taking a soft landing approach in the initial stages.

Indeed, Deputy CEO and Second Permanent Secretary of HMRC, Jim Harra, said: “Our ambition is to help businesses moving to MTD to get it right, not to penalise them. HMRC’s decision not to enforce penalties will help businesses transition to MTD without fear of getting it wrong.”

Officials also recognised the difficulty of the current time for businesses due to Brexit looming, saying they were supporting firms, rather than enforcing penalties when firms are “fully focused on preparations for leaving the EU on 31 October”.

What do the stats show?

Nearly a million businesses registered for MTD before the August deadline and some 900,000 VAT returns were submitted successfully through the new service.

Around 490,000 businesses were mandated to file their first MTD VAT return by 7 August. Some 370,000 of them signed up in time, and 120,000 did not. This was “in line with HMRC’s expectations”, officials said, being the same proportion of monthly VAT filers who joined ahead of 7 June.

HMRC advised businesses who did not register for MTD in time for the August deadline to file their return as they have done previously, such as via the VAT portal.

The previously used portal still exists, partly because not every organisation has to comply with MTD for VAT during the first phase, if they fall under the £85,000 income threshold.

HMRC will send a letter to those who have still yet to sign up, encouraging them to join without further delay.

Is there anything to worry about for now?

While the soft approach to enforcement may appear to be good news for many overall, it comes with a health warning, regarding the potential for complacency.

If you have clients who were among those who failed to make the cut you could think, ‘why bother rushing then to get signed up in time for the next deadline?'.

Although HMRC has been pledging to take a lenient initial approach for some time, it has also previously stressed that it will not penalise those businesses who are doing their best to comply - the latter part of that sentence being key. So, simply taking no action, being lazy or complacent won’t cut it.

Do you or your clients really want to keep risking penalties in future?

How severe can penalties be?

Under normal circumstances, the level of a penalty is linked to the (gross) turnover of the VAT registered business:

•             If 'Total Turnover' = £22,800,001 and above then the maximum penalty assessable is £400

•             If 'Total Turnover' = £5,600,001 to £22,800,000.99 then – £300

•             If 'Total Turnover' = £100,001 to £5,600,000.99 then - £200

•             If 'Total Turnover' = £100,000.99 and under then - £100

What is the long term solution?

The best way to get fully on board with MTD for VAT, and not to worry anymore about compliance, is online bookkeeping software that is MTD compatible - in other words, capable of communicating with HMRC in the required way.

We would suggest looking at KashFlow, which entirely meets the MTD for VAT requirements, ensuring firms have everything in place for future so they never miss an MTD for VAT deadline. It enables users to:

  • Keep and preserve digital records
  • Create a VAT return from these digital records
  • Communicate and link up directly with HMRC, meaning their data goes straight to the right place every time
  • Reduce the time spent searching through files by keeping their books structured, simple and in one place

What’s the alternative?

We realise bookkeeping software is not always the right solution for all accountants. Alternatively, consider IRIS VAT Filer, our bridging software solution, which can bring you up to speed in the short term.

IRIS VAT Filer automatically connects to HMRC allowing the you to import VAT data from various sources and submit directly to HMRC. While also retrieving client data such as previous submissions made under MTD, current VAT obligations, liabilities due and payments already made. Making your clients’ submissions much more straightforward.

Where next?

In summary, businesses may escape unscathed from a missed deadline this time around but that may not be the case for long. So, why not get your digital VAT solution in place sooner, rather than later, to avoid further headaches and stress about the next big deadline when it comes around.