Businesses dashed to sign up for Making Tax Digital (MTD) before the first quarterly VAT submission deadline, according to figures released by HMRC.
A combination of a marketing blitz from accounting software providers and regular reminders from the government certainly did the trick as small business owners rushed to sign up before 7th August deadline for Making Tax Digital (MTD) in time for the first quarterly submission.
Around half a million businesses completed registration in the month leading up to the deadline, resulting in 90% compliance by 1.2 million businesses affected by MTD.
What happens if I do not register?
At the moment around 120,000 businesses have still not complied and may be liable for points and penalties based on the Governments new two-tier 'points based' penalties system,
The Government stated:
“A customer receives a point every time they fail to provide a submission on time. At a certain threshold (depending on the frequency of their submission obligations) a penalty is charged. Once the threshold is reached, a penalty is charged for every subsequent failure to provide a submission on time. The points are reset to zero after a period of good compliance (that is, meeting submission obligations on time), again depending on the frequency of the obligation.”
Likened to receiving penalty points for driving offences, these points will also expire after four successful submissions. You will also have the option to appeal them if you feel they are unjust or unfair.
Time for businesses to adjust
HMRC has said it is treating the first year of MTD with greater leniency than usual. Those that have missed the initial registration deadline, but are seen to be trying to comply, will not be sent filing or record-keeping penalties.
Businesses already exempt from online VAT filing before MTD will continue to be exempt. Those affected by disabilities, age or location factors or religious beliefs that make it harder to adapt to the new system can apply for an exemption.
What are the fines?
Once the 'soft-landing' period ends in April 2020, the normal VAT penalty regime will kick in and HMRC will issue fines for late payment. Businesses that have defaulted on their VAT returns over the past 12 months could receive a cumulative penalty that increases according to the number of defaults.
More than six defaults across 12 months could result in a 15% fine of the total VAT due. Careless or deliberate inaccuracies in either under- or over-statements could result in 100% penalties.
Keeping accurate records should ensure you do not receive any unwanted correspondence from HMRC next spring!
Final tip: Have the right software in place
If your business qualifies for MTD, make sure that your software is MTD compatible and that you have registered. You can use either a compatible software package that allows you to keep records and submit VAT Returns, or bridging software that will help connect non-compatible software (like spreadsheets) to HMRC systems.
HMRC has drawn up a list of compatible software, you can check to make sure yours is here: search for software.