HMRC showing leniency

Only 25% of businesses have signed up - how about you?

HMRC have declared their intention to go easy on businesses - and there are plenty of them - who are dragging their feet over registering for the new Making Tax Digital (MTD) regulations. If you haven’t yet registered - does this mean you can relax? The short answer is ‘no’. Just because HMRC appears to be taking a lenient approach doesn’t mean that penalties aren’t just around the corner.

In the last six months, I’ve posted two articles on this topic. The first was a general introduction to Making Tax Digital. The second explained how the government would be using the information it collects via the MTD process. Today is a progress report. We’ll look at how the switch to MTD is progressing and how important it is to average UK businesses.

What is Making Tax Digital?

Let’s hear it from HMRC themselves – their website
“Making Tax Digital is making fundamental changes to the way the tax system works – transforming tax administration so that it is:
• more effective
• more efficient
• easier for taxpayers to get their tax right”
The government calculates that, with the information coming directly from the accountancy software, the new process will dramatically reduce tax lost due to errors. They estimate that £9.9bn is lost due to avoidable errors, £3bn of which is linked to VAT.

MTD is being introduced in phases.

Phase 1
From April 1st this year, all qualifying businesses are supposed to be using the HMRC MTD software to submit their quarterly VAT returns. This can be done through all legitimate online accounting software platforms.

Phase 2
Starting, at the earliest, in April 2020, whatever the size of your business, you’ll keep all your tax information in a digital account. Every transaction you make will be uploaded and updated in real time. This means that you’ll pay your tax by direct debit tax every quarter.

Does MTD apply to my business?

Almost certainly. Does your business turn over more than £85,000 (the current VAT threshold)?

Then the key date for you was April 1st 2019 when phase 1 kicked in. This is all about your VAT returns.

If your business turns over less than £85,000 and you’re not registered for VAT, then phase 2 of MTD will apply to you. This starts, at the earliest, on April 1st 2020 and will apply to all businesses, regardless of size. This phase relates to your annual tax returns.

With the April 1st deadline now long passed, the first batch of VAT returns is due to be digitally filed by 7 August. But here’s the issue. Only around 25% of businesses have registered. For whatever reason – general apathy, ignorance, lack of information – the registrations just haven’t been happening.

The government appears to be displaying infinite patience. HMRC says it will be lenient with organisations that run into problems registering for the service, provided they act in good faith.

But that doesn’t mean you can afford to be complacent. The time will surely come when penalties for non-compliance will be applied.

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.

Our advice? Register. Play the game. After all, there will be benefits.

Less stress
By submitting your tax information every three months, you’ll no longer suffer the stress of meeting dreaded end-of-year deadlines.

Less paperwork
Less paperwork? More like, no paperwork. Your cloud accounting software will automatically record every single business transaction. This will be checked against your quarterly submissions to HMRC.

Fewer nasty tax shocks
Tax will be calculated quarterly, so you won’t have large tax bills building up. Your liability will be quarterly, so you’ll be paying a little, more often.

More chances to pay less tax through accurate planning
Businesses that are up-to-date on their tax obligations are much better placed to strategically manage their bills, with a chance of keeping them as low as possible. For example, armed with more accurate information, you might choose to increase your retirement contributions or reinvest in your business.

Here to help

The best advice? Act now and avoid penalties. If you’ve already registered for MTD – excellent. If you haven’t or you’re unsure whether you have to, the answer is simple. Get in touch. We’re specialists in every aspect of VAT and Corporation Tax. Call us – 020 3008 7820. Remember – we’re here to help.


This legal information is not the same as legal advice and you may not rely on our post as a recommendation of any particular legal understanding. Please, consult an attorney if you’d like to get advice on your interpretation of this article.

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