HMRC has promised not to throw the book at firms who struggle to register for Making Tax Digital (MTD) as new figures show total take-up lagging in certain sectors.
Three-quarters of VAT registered financial firms have not signed up for MTD despite the looming legal deadline for the first mandatory filing. Under the ambitious new MTD system, VAT-registered businesses trading over the £85,000 threshold must keep their records in a digital format and submit their VAT return using compatible software.
MTD became law for VAT periods starting on after 1 April 2019 which means the first cohort of organisations will be required to file their VAT returns digitally by 7 August. If paying by direct debit, these businesses must register by 27 July. Organisations that are deemed to be ‘more complex’ have until 1 October to register.
More than 1.2m organisations must submit their VAT information digitally, directly from MTD-compatible software. HMRC says this will reduce tax lost due to errors as the information comes directly from the accountancy software. Government figures indicate that £9.9bn is lost due to avoidable errors, £3bn of which is linked to VAT.
MTD was first announced in 2015, but despite the lengthy time to publicise the scheme and several postponements to its implementation, awareness among businesses appears low. Figures released by HMRC show that only 25% of financial firms have registered. This contrasts with the agricultural sector in which 50% of businesses have registered.
Theresa Middleton, Director of Making Tax Digital at HMRC, said: ‘During this first year we won’t be issuing filing or record keeping penalties to businesses doing their best to comply.’ However, it says that sanctions could be levied in cases of deliberate non-compliance or to safeguard VAT revenue.
John Forth, the head of RSM’s financial services indirect tax practice commented: ‘While it’s not clear why financial firms have been so slow to sign up, these figures are pretty shocking.
Those who are exempt from filing VAT online because of accessibility or other issues will remain exempt from MTD, HMRC said, with exemptions available to others who have problems accessing the system on a case by case basis.
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