Making Tax Digital for VAT Deadlines, Signing Up Clients, and What’s Next for MTD.
Date Published: July 23, 2019
Category: Accountants, MTD for VAT, Making Tax Digital
With Making Tax Digital (MTD) for VAT coming into effect for VAT periods starting on or after April 1st 2019, many businesses will be required to file their first return under MTD for VAT from August 7th. Getting your eligible business clients ready for their submission is even more pressing for businesses which pay by Direct Debit, as the deadline to register is July 27th.
HMRC say that they are seeing nearly 10,000 businesses signing up daily, with more than 600,000 signed up in total. So far, around 400,000 submissions have been made using MTD for VAT compliant software. Interestingly, HMRC say that the slowest uptake of MTD for VAT has been in the financial sector. Almost 75% of businesses in the financial sector are yet to register.
In order to comply with MTD for VAT, businesses with a taxable turnover of over £85,000 will now be required to keep their records digitally. However, registering too soon could cause issues. Once the client is signed up to MTD for VAT they are unable to revert to VAT Online Services. For clients who file monthly, MTD for VAT took effect for submissions on June 7th for the accounting period for 1st to 30th April. For quarterly filing businesses, the first return under MTD for VAT is due August 7th.
Making Tax Digital for VAT for Quarterly Filing
Unless your client is exempted under the HMRC rules or deferred to the VAT period on or after October 1st 2019, you will need to ensure they are ready to sign up before their first MTD for VAT return is due. This will fall into one of the below sign up periods:
- Submission date of 7th August – sign up between 15th May to 23rd June
- Submission date of 7th September – sign up between 15th June to 23rd July
- Submission date of 7th October – sign up between 15th July to 22nd August
The sign-up periods provided by HMRC are essential for businesses who pay by Direct Debit. Businesses who do not use Direct Debit to pay their VAT are able to sign up from 24 hours after the final ‘old’ VAT submission is made. As the first return for a majority of clients should be made from 7th August, most of those businesses should now be signed up to MTD for VAT. If you have clients not yet set up with MTD for VAT it isn’t too late. Sign them up using the steps below and ensure you allow 72 hours between registration and the first submission, or 7 working days if they pay by Direct Debit.
Deadlines – In Brief
Direct Debit clients:
- Follow HMRC guidance on sign up dates
- Sign up 7 working days prior to their first return
- Follow HMRC guidance on sign up dates
- Allow 24 hours after final ‘old’ VAT return to register
- Sign up 72 hours prior to their first return
Setting Up Clients for MTD for VAT
In order to work on behalf of your clients for MTD for VAT submissions, you will first need to create an Agent Services Account (ASA) and link your current HMRC Online Services Government Gateway ID. The client will then need to sign up as MTD for VAT registration isn’t automatic. You can also do this on their behalf. Within your new Government Gateway, you are able to copy across your existing Self-Assessment and VAT clients which will authorise you to handle their VAT returns. Signing up new clients is simple, as once you have entered their details HMRC will provide an authorisation link to email to your client.
You will be able to provide the VAT details of your client from within your ASA, which will allow you to sign them up for MTD for VAT. This part of the process should be allocated plenty of time as onboarding is repeated for each client you need to link to. HMRC advise that once you have submitted the details, MTD for VAT set up should be completed within 72 hours.
Setting up MTD for VAT – In Brief
- Sign up for your Agent Services Account with HMRC
- Link your new ASA to your current HMRC Online Services account
- Copy over your existing SA and VAT clients
- Or register new clients and send them a link for authorisation
Penalties and Surcharges
HMRC are taking a soft approach to penalties and surcharges whilst MTD for VAT is rolled out, but that doesn’t mean your client will automatically avoid costs if they miss their deadline. Importantly, HMRC are not issuing penalties and surcharges to businesses which “try their best” to comply, so it’s vital to take proactive steps if a deadline has been missed. Ensure your client has paid any VAT owing, then set up the business for MTD for VAT if you haven’t yet done so.
HMRC Making Tax Digital Director, Theresa Middleton, said:
“During this first year we won’t be issuing filing or record keeping penalties to businesses doing their best to comply.”
Making Tax Digital – What’s Next?
Now that businesses with taxable turnover over the VAT threshold are signing up and submitting their VAT Returns via the MTD for VAT service, HMRC is looking ahead to the next steps starting with Making Tax Digital for Income Tax. A live pilot is currently underway involving businesses and agents keeping digital records and sending updates to HMRC. Whilst there is no timeline given for mandation of MTD for Income Tax, your self-employed clients can voluntarily use software to keep their records digitally and send their Income Tax updates to HMRC instead of filling out a Self-Assessment tax return.
When MTD for VAT was rolled out, there were concerns over the speed of the change to Making Tax Digital. HMRC have since announced that no new taxes will be mandated for MTD in 2020, nor will they bring exempt businesses under MTD. With time to plan and participate in development alongside the pilot scheme, software developers will be working alongside HMRC to keep their programs up-to-date and fully compliant.
We will have to watch what HMRC do next. With new Making Tax Digital rules postponed into 2021 and the MTD for Income Tax pilot running currently, we are still awaiting firm dates for mandation of further MTD schemes. Collaboration with software developers will be essential for the government’s plans to use digital record keeping and filing to close the £9 billion tax gap attributed to avoidable mistakes. In the long term, it is likely that the aim of reducing the tax gap will bring Corporation Tax onto the MTD system too but for the time being we must wait and see what MTD for Income Tax will bring.