UK VAT registered businesses who are yet to sign up for the so-called Making Tax Digital (MTD) by today will fall foul to non-compliance, penalties and an inability to file their VAT returns.
The amount of businesses facing a default surcharge penalty is expected to significantly increase in November as a result of businesses being unable to submit their VAT return.
Despite this, it is anticipated that up to 832,000 businesses still remain unregistered for MTD – up to 33 per cent of UK VAT registered businesses (including British and foreign companies, according to data shared by tax compliance tax firm Avalara, shared exclusively with City A.M. this morning.
On 1 April of this year, MTD was extended to all UK VAT registered businesses, regardless of their size, turnover, location, or whether they voluntarily registered for VAT.
Following this extension, the latest major milestone in MTD’s roll-out is HMRC turning off the ability to file the UK VAT return through the legacy web-based VAT online account on 1st November – meaning any business that hasn’t already signed up for MTD and started using MTD compatible software, won’t be able to file their UK VAT returns from this date.
The only exception being a last minute extension from HMRC for companies trading below the VAT registration threshold of £85,000 who haven’t signed up to MTD in time to file their next VAT return by 7 November, to exceptionally continue to use their existing VAT online account for that return only.
As businesses find themselves under financial strain during the current economic downturn, high fines and risking non-compliance, or a delay in receiving a VAT refund, is the last added burden they want on their minds.
Many businesses will already be within the default surcharge regime and face penalties for any subsequent late payment of VAT.
A new VAT penalty regime also enters force from January 2023, with late return submission penalties and late payment penalties and interest applying.
However, it is not only unregistered MTD businesses who can fall foul to incurring unwanted costs.
Any UK VAT registered business could face penalties of up to £1,600 per year if they do not file their UK VAT return to HMRC via API using functional compatible software.
In addition, with a penalty of between £5 to £15 for every day a business doesn’t have clear digital links in the VAT compliance process, such as continuing to copy and paste data within spreadsheets or re-typing data between systems and reports, and the identical daily penalties for failing to keep the required VAT records digitally, non-compliance could be costly.
Businesses must also use the checking functions with the software they use. Where checks have not been run and errors have been identified, HMRC may charge penalties.
Depending on the circumstances, this could be up to 100 per cent of the VAT. HMRC will likely view having digital links and running VAT checks as examples of taking reasonable care and provide an ability to mitigate penalties down, whereas a failure to have these digital processes in place, could lead to harsher and higher penalties applying.
“Time is ticking for UK VAT registered businesses who are yet to sign up for MTD or meet the main requirements,” stressed Alex Baulf, senior director of global indirect tax at Avalara.
He explained to City A.M. today that “with a range of different penalties for failing to comply that could be in the thousands, as well as the inability to submit a VAT return and receive a VAT refund, businesses looking to stay afloat during what is set to be a tough winter want to ensure non-compliance isn’t added to the list of bills to pay.”