Not Ready for Making Tax Digital? How to Avoid Huge Fines
Even though April is already here, it's never too late to avoid hefty fines. By law – you're now required to file your VAT returns digitally using HMRC-compatible software.
This initiative is called Making Tax Digital (MTD) and is part of the UK’s plan for a more digital future, but not all businesses are ready. If you’re one of them, here Damon Anderson, Director of Partner at Xero explains what you can do to avoid huge fines.
1. Check your eligibility
If your business makes more than £85k each year in taxable turnover, Making Tax Digital for VAT will apply to you from April 1. After this date you won’t be able to complete a paper-based VAT return, or complete your VAT return online at the HMRC VAT portal.
If you suspect your business will soon fall within the VAT threshold, keep records digitally using HMRC-compatible software to stay within the rules.
2. Act now
If you’re eligible, first you need to find an HMRC-approved software vendor. Xero has bridging software to make it even easier to make the switch and it’s MTD tools are now live, are free for Xero users and allow you to:
- Know when VAT returns are due
- Keep a history of the VAT returns that have been filed
- Calculate how much VAT is due
- Identify the method of payment
- Post VAT returns in real time
MTD for VAT will change to the way businesses file their tax, so there’s no escape. If you’re not sure where to turn, speak to an accountant who can advise you. To help small businesses and their advisers to comply, we’ve also created Dexter the digital tax adviser who is putting a friendly face to the legislation.
Keep in mind that some VAT-registered businesses have a deferred start date of October 2019. You can find more information on eligibility here.
3. Know your penalties
HMRC can charge a maximum penalty of £500 for failure to keep the required VAT records. But don’t panic: HMRC understands Making Tax Digital is a big step, and while penalties will apply to record keeping requirements, it is expected to be sympathetic where the trader has made reasonable efforts to comply.
There’s no doubt that businesses are dealing with a lot at the moment and HMRC has said they will not pursue record-keeping penalties when businesses are doing their best to comply with the law. However, eligible businesses should still make the effort to comply by 1st April.
4. Embrace it
Millions of businesses already do so much of their business online, from banking, paying bills to interacting with their customers or suppliers, and many already using accounting software and are seeing the huge benefits. By moving to digital tax, many of the existing paper-based processes will be put to bed, allowing businesses and their agents to devote more time and attention to growing and nurturing their business.
Making Tax Digital will make tax filing simpler and more accurate. The sooner you get used to digital tax filing the more time you’ll have to grow your business.