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Making Tax Digital: Letters for laggards

16th Aug 2019
Letter on doormat stock
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Some 120,000 businesses did not sign up in time to make their first MTD for VAT filing. However, in line with HMRC’s ‘light touch’ approach, they will not be penalised and will instead receive emails and letters aimed at ushering them through the digital tax doorway.

According to figures released by HMRC this week, approximately 490,000 businesses were required to file their first MTD VAT return by the deadline of 7 August: around 370,000 of them signed up in time and 120,000 did not.

A spokesperson told AccountingWEB that this was “in line” with the Revenue’s expectations and the proportion of monthly VAT filers who joined ahead of 7 June.

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

HMRC advised businesses that didn’t make the August deadline to file their return as they have done previously, such as via the VAT portal.

Light-touch approach

The majority of VAT-registered businesses with turnover above the VAT threshold were required to keep their records digitally for periods starting on or after 1 April 2019, sign-up to the service and submit their first quarterly return to HMRC direct from software by 7 August.

While under normal circumstances, non-compliant businesses could have expected a fine of up to £400 for digital tax foot-dragging, HMRC has stated that it will be taking “a light touch” to penalties in the first year of MTD mandation.

The Revenue puts this softly-softly approach down to a wish to help businesses with the transition especially at a time when they are fully focused on preparations for leaving the EU on 31 October.

HMRC will not issue filing or record keeping penalties where businesses are doing their best to comply. However, according to Revenue guidelines sanctions will remain in cases of “deliberate non-compliance” in order to “safeguard VAT revenue”.

In a statement HMRC’s deputy CEO 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.”

Letters to latecomers

Instead of penalties, HMRC is instead in the process of sending email reminders to businesses yet to register with the new programme. It will also send letters to those that missed the first filing deadline.

The letters will point latecomers to the MTD regime to HMRC’s customer service channels, including its webinars and online guidance, which can be found on GOV.UK, and walkthrough videos on YouTube.

Penalty levels

While the tax authority confirmed back in February that it will be taking a light-touch approach to penalties during in the first year of Making Tax Digital, under the current regime penalty levels are linked to the gross turnover of a VAT-registered business and are laid out as follows:

  • Total Turnover = £22,800,001 and above then the maximum penalty is £400
  • Total Turnover = £5,600,001 to £22,800,000.99 then – £300
  • Total Turnover = £100,001 to £5,600,000.99 then - £200
  • Total Turnover = £100,000.99 and under then - £100

Businesses can sign up for MTD on GOV.UK. If paying by Direct Debit, businesses should sign up at least seven working days before a return is due. If not paying by Direct Debit, businesses should register at least 72 hours (three days) before their return is due.

Replies (13)

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By ireallyshouldknowthisbut
16th Aug 2019 17:01

So how much extra VAT revenue has been raised from the 370k returns?

That MUST be the question pushed back to HMRC given this huge amount of time and effort that has gone into this farce for sending the same 9 numbers in a slightly different digital system than before.

Thanks (4)
Replying to ireallyshouldknowthisbut:
By Charlie Carne
19th Aug 2019 09:44

Why? The short-term purpose of MTD is not to generate an instant increase in tax revenue, but to move businesses onto a system that will, in future, allow real-time reporting and, potentially, cross-checking without opening a formal enquiry.

Thanks (0)
Replying to charliecarne:
By ireallyshouldknowthisbut
19th Aug 2019 10:56

Not so Charlie.

The whole point according to HMRC was to (laughably) increase the tax take by reducing errors in the returns.

Apparently billions has been lost when transferring figures between computations and the VAT portal, and also rather memorably, due to invoices flying out of van windows. (no me neither)

This system has been introduced at huge cost to the public purse, and to the tax payer in order to increase the tax take.

At no point during HMRC's lengthy appearances in front of the Lords economic affairs select committee was there any mention of reduced time in tax investigation - not least as this project does not deliver that at all. Its the same flipping numbers filed as before.

Thanks (4)
Replying to ireallyshouldknowthisbut:
By Charlie Carne
21st Aug 2019 10:48

I agree with you that it is nonsense to assume that HMRC are out of pocket due to numbers "going missing" betwixt comps and portal. If these were innocent errors, then the numbers would just as often go the other way (with a consequent over-payment of tax) and, if they were intentional, then taxpayers can just as easily (and fraudulently) adjust the numbers in their MTD-compliant software prior to filing.

I have always assumed that the ultimate long-term goal is to give HMRC a back-door into all cloud software so that their algorithms can check all businesses' books at any time. That would indeed reveal errors and frauds more quickly and easily. If I am right, it makes sense for them not to explicitly state that as a reason up front, so as not to frighten the horses! This will come in stages: firstly moving everyone onto standardised software (ultimately removing the option for bridging software), which will make it easier to run standardised checks; then making it easy for HMRC to gain direct access to the books without needing a visit to the taxpayer's premises; and, perhaps, ultimately (as we move inexorably towards the Big Brother state) granting HMRC permanent access to all cloud providers' databases.

Thanks (1)
Replying to ireallyshouldknowthisbut:
Morph
By kevinringer
19th Aug 2019 13:29

I've asked this in my blog post. HMRC was quite clear that the purpose of MTD was to reduce errors and close the tax gap.

Thanks (2)
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By david.bransbury
16th Aug 2019 17:22

Back on 1 March 2019 I said on this good forum

https://www.accountingweb.co.uk/tax/hmrc-policy/mtd-exemptions-guidance-...

"Filing penalties do not have to have a warning letter sent by the HMRC."

I was politely told that I was wrong.

The press release is now implying I was correct.

VAT regulations 1995 reg. 25A (17)

Thanks (0)
Replying to david.bransbury:
By ireallyshouldknowthisbut
19th Aug 2019 10:55

Those are the existing penalties for not making an electronic return.

Assuming the tax payer files under the current system they cannot be applied.

Moreover if you have tried to comply you have a reasonable excuse under section 16. Ditto, if the fugging thing doesnt work, ie its fallen down one of HMRC's black holes you have a reasonable excuse to file on paper.

There are no penalties at all for filing under the current system rather than MTD. This is "an electronic system".

HMRC simply cant penalise you at the moment, despite their pretence that they are somehow doing everyone a favour by not doing so.

Thanks (2)
By jon_griffey
17th Aug 2019 14:00

I have several clients not in MTD who report exempt/OTS supplies in Box 6 and there is no way that HMRC can tell these from zero rated supplies. I fully expect that I will have to waste time dealing with worried clients that have incorrectly received threating letters from HMRC.

Thanks (1)
Replying to jon_griffey:
avatar
By david.bransbury
18th Aug 2019 11:43

In a perfect world the HMRC would only send the threatening letters to taxpayers who had £17,000 or more in box 1. (Obviously an advantage to zero rated or reduced rate suppliers) Then send a more polite reminder letter for VAT registered business with a box 1 amount of less this amount. However ....

As any one seen a letter yet.

Thanks (0)
Replying to david.bransbury:
Morph
By kevinringer
19th Aug 2019 13:31

This doesn't work either David. Most of my clients are farmers who have next to nothing in box 1 because they make zero-rated supplies.

Thanks (0)
By SteLacca
19th Aug 2019 09:23

If HMRC didn't make the sign up process so convoluted, and had a system that actually works they may have had more success, but their bid to rush it all through with ill conceived processes puts them firmly at fault.

Thanks (6)
Replying to SteLacca:
Morph
By kevinringer
19th Aug 2019 13:32

In other words SteLacca HMRC carried out an inadequate pilot.

Thanks (2)
Morph
By kevinringer
19th Aug 2019 13:36

I don't understand why HMRC had to change the DD over. Most of my clients receive refunds so didn't face the sign up restrictions. I signed up one just 24 hours before the deadline and the registration was accepted on deadline day so the return was filed on time. If it wasn't for the DD restriction other businesses would have had less hassle and more would have signed up.

The DD was for VAT before MTD and is still for VAT afterwards. It is the same tax. The only change is the reporting mechanism and for my clients who filed using software pre-MTD (eg QBO or Sage) that hasn't changed either: they're using the same software and the same filing process (from a software user's perspective) to file the same tax which they pay by the same DD. So why did HMRC change the DD and introduce all these problems?

Thanks (2)