Words by Donna Torres, director of small business at Xero
It’s been 10 months since the Government launched new digital tax rules for businesses. Known as Making Tax Digital (MTD), it meant that all businesses over the VAT threshold had to submit tax returns digitally using compatible software.
Last year was challenging. As well as dealing with Brexit uncertainty, SMEs also had to make sure they were adhering to these new tax requirements.
It’s been a huge undertaking and 900,000 VAT returns have been successfully submitted. But not everyone got ready in time. Thankfully, HMRC was lenient in setting fines to allow for a grace period. This was good because, as of August 2019, 10% of small businesses missed their first deadline.
The current state
It is now the second phase of the transition. The soft landing period for penalties is coming to an end.
Businesses that fail to comply will incur points. Every time they are late with a submission, penalties will be incurred once they pass the points threshold. You will get a fine after four accumulated points for a missed monthly or quarterly VAT return. Fortunately, points will be reset after a period of sticking to the rules.
HMRC also now requires digital links and digital bookkeeping. This means you have to submit your tax using compatible software. This might be a good time to chat to your accountant or bookkeeper. It applies to you if you use multiple pieces of software or spreadsheets for some aspects of bookkeeping. You will need to create a digital link which transfers data between places. This is so that all the information you need is in one place.
HMRC is not accepting copy and pasting as a digital link. It’s illegal to submit your digital VAT returns this way. Businesses that received a deferred start date of October 2019 can still compile and submit their VAT returns this way until April 2020.
The future state
The UK is working towards being fully digital – and this includes all areas of tax. As part of this, at some point in the future it will implement these digital tax rules for income tax (which includes self-assessment and PAYE) and corporation tax. It’s worth keeping an eye out, and/or chatting to your accountant so they can let you know when these changes are likely to affect you.
For businesses who have previously missed a deadline, now is the time to get prepared. OurMaking Tax Digital hub is full of useful information and resources, including how to make the switch to digital VAT returns. It is also worth chatting to your accountant. It might be that they have submitted on your behalf without your knowledge.
Valuable and practical advice in crucial business areas. No fake experts!
High Quality knowledge, fresh ideas, inspiration and motivation delivered for you
by a Community of experienced, honest and trusted advisers.
Latest posts by Editorial Staff (see all)
- Maximizing Your Revenue Potential: Developing a Strategic Plan for Sales - February 18, 2023
- The Future is Here: How Artificial Intelligence is Revolutionizing Small Business - February 14, 2023
- The Key to Higher Sales: How Personalization Can Help You Grow Your Business - February 5, 2023