HMRC repurposes VAT penalties for MTD
In a move to boost digital filing and record-keeping for Making Tax Digital, HMRC has dusted off two VAT penalty provisions from the analogue era.
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Rebecca Cave is now retired from 35 years in the tax world, including eight years as AccountingWEB's consulting tax editor.
Replies (23)
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Those Accountants just tapping in the 9 box numbers and not following the MTD rules are gonna be in the xxxx !
How will HMRC know unless the tax payer tells them?
Not seen a VAT inspector "in the flesh" for nearly 20 years, and that was when one came banging on my door due to a dodgy client (soon ex) putting out address down as their business address. They left shortly afterwards.
I have only dealt with them on the phone/letter/email since. Just flat refused any inspection visits to us or to clients.
I had one not long before Covid. Pub in a refund position every quarter (due to high VATable rent they couldnt get out of and a lossmaking business)
I was surprised by the amount of effort they went into, before finally agreeing to drop it.
"an old penalty regime, designed in the analogy age, has been dusted off to apply to digital filings and digital records, but perhaps there has been no resource available within HMRC to rewrite that regime to better fit the digital age".
Maybe they've been too busy trying to find a suitable analogy for the move from analogue to digital?
Will they be replacing penalties with 'performance surcharges' or some such?
For those balancing the potentially very high cost of full 'to the letter' compliance with digital links at every step the risk and cost of penalties (often a cut'n'paste will be in the process somewhere for example, especially for complex business with multiple systems or say a group VAT registration), I think its important to point out the daily penalties under 1994 s69(3) require a warning, ie are similar to the self assessment daily penalties.
When used in the past it would have been on an inspection finding fault, which then gave you usually 30-60 days to correct and then daily penalties thereafter. How that is going to sit with HMRC who clearly do virtually no routine VAT inspection or any kind (they tend to only check large repayments), let alone checking digital compliance is unclear, but they seem to be entirely theoretical.
I wonder if HMRC will try and pretend a general notice of their existence is a notice, but would expect to see that overturned on appeal.
This notice seems just a 'scare' tactic to me. HMRC simply don't have the resource to check what happens prior to filing. If you recall the failed business records checks project, HMRC simply did not have the staff or competence to understand client bookkeeping, and they had a lot more staff back then and of a lot higher calibre than now.. We told them exactly this at the time, and were correct.
Hopefully, after the next GE, we won't have a Government who are happy to feed the coffers of big software companies at the expense of small business, and will abandon the whole digital thing.
I'm not confident, but I can live in hope.
HMRC: As always, the stick rather than the carrot.
Who remembers the carrot when electronic PAYE P35s started? Those were the days my friend.
It really exemplifies the thinking in Government and HMRC - Fines are the way forward - taxes are too high and they need more money to waste on inefficient civil service departments like the passport office, the MOD, HMRC, the NHS (has anyone managed to see a GP recently?) and so on, so what's the answer - fine the beggars - they can't complain then because they are in the wrong. Vladimir Johnson says so!
It's our money these w****rs are wasting and I, for one, am not impressed
I thought MTD was supposed to "help" small businesses, rather than just be a vehicle for imposing fines.
So 1994, when we were completing a VAT return and posting it, was the "analogue" age? But just look how far we've come in 28 years! We still complete the SAME VAT return but transmit it using computerb*llocks, first HMRC's system but now, (forward to the space age) through "Maxing Tax Digital". The end result is exactly, precisely, the same. Just what has been achieved by all this grief? Just what benefit has accrued to anyone, anywhere?
"B*gger all", came the reply.
BUT, I am sure that, the purpose is to eventually get to a system where HMRC can look beyond the digital links & see an actual transaction ie. whether the VAT being reclaimed can be matched to VAT already paid over to them &, if not, why not. This can, in fact, be the only purpose of the whole excercise if you consider it logically. Wether they are capable of achieving this is doubtful as, going by previous experience of HMRC computer technology, they are incapable of not messing it up (at least during the remainder of my working life)!
Not if the tagging is done properly.
On the basis that someone's expense is someone else's income, then each transaction will have a tag (invoice number, serial number or whatever). Shouldn't be too difficult for the computer experts to contra these off.
Now, given that "in order for MTD to work" we have to revert to 5th April year end, it's not going to be too difficult for an algorithm to be set up to actually come up with a profit figure for business. HMRC then won't have to take pot luck, they can target those that aren't in the percentage allowance.
How long will all this take?????????????????????? Years, but I'm 100% sure that is what HMRC is aiming for. There's no other reason for MTD, especially when the turnover figure is STILL £10k.
HMRC would not have published this guidance unless there was a game plan. These penalties have always existed in terms of VAT, so there must be a relevance to highlighting them now and with a head line of "MTD Compliance".
Once the penalties start flying, HMRC can say that they did notify and inform all taxpayers, so job done from HMRC's perspective.
Whilst I doubt HMRC have the resources to do full on VAT inspections, I see a potential for HMRC when a taxpayer has filed their VAT return and the return is a bit unusual, perhaps a refund, perhaps a larger liability than historically, maybe a taxpayer has filed a voluntary disclosure or some other innocent interaction that requires HMRC to intervene.
I've had a few VAT inspections like this recently, via email. HMRC Officer has asked for copies of the top 10 highest valued purchases or sales invoices. They have also asked me to supply the VAT detail breakdown (ie, the Sage report, etc).
Neither of these are unusual, HMRC have always asked for copy invoice and copy of VAT report when verifying a refund return, but there it is, that interaction. HMRC are seeing the VAT detailed report, they could ask where that data came from, more so if the report is say from an excel spreadsheet rather than say Quickbooks....I've not had any deeper enquiries as yet, HMRC being satisfied with seeing the invoices, but the opportunity to ask for more detail about the VAT report and how it was drafted are certainly there for HMRC to ask.
@Jason, the type of enquiry you report is the only we ever have, every time prompted by a big rebate. What we don't get at any time is a proper stratified review. If they tacked on a systems type chat its just going to be like the long since abandoned P11D dispensations which were given up as a bad job years ago.
The question remains, at what point can HMRC have a clue what happens prior to submission? The answer to me is "very rarely".
HMRC simply don't have the staff, skills or inclination to police client bookkeeping. All they have is a dusty old list of penalties from over 25 years ago to wave around.
They cant do it for VAT and have no chance at all for income tax.
@Jason, the type of enquiry you report is the only we ever have, every time prompted by a big rebate.
Same here. And this is where MTD could have been made useful. MTD should have been built with the functionality for users to attach copies of invoices if the user wants to. We all know that if the client has bought business premises, HMRC is likely to delay the repayment whilst HMRC sluggishly get round to asking for the invoice. So it would save time all round if we could attach it, just like we can attach anything in SA if we feel it will avert an enquiry. We've had that technology in SA for 20+ years, so why not in MTD VAT? Similarly, we've had "white space" in SA for 20+ years, so we can provide explanations if we feel that might avert an enquiry. So why wasn't this also built into MTD VAT? Finally, we've been able to submit amended SA returns online for 20+ years, but not MTD VAT. If we want to amend a MTD VAT return we have to use a paper form. That one fact destroys any case HMRC attempt to make about MTD VAT being designed for the digital age.
"it would save time if we could attach (an invoice), just like we can attach anything in SA if we feel it will avert an enquiry. We've had "white space" in SA for 20+ years, so can provide explanations if we feel that might avert an enquiry. So why wasn't this all built into MTD VAT?"
Because , although it might be logical and save you/the client effort & time, it would require HMRC systems to acknowledge that they require humans as part of standard operating procedures.
Whereas they are committed to a path of more & more 'automation' using (in their minds) fewer & fewer staff ... which is what they believe 'digital' will deliver!
They are now commonly asking for the bank statements showing the payment of the largest invoices which is actually ridiculous assuming clients are filing on an accrual basis.
HMRC, one of the main reasons I've decided to find myself an exit and just started to teach myself to program, I'm fed up with all their nonsense.