Making Tax Digital (MTD) for VAT now applies to all VAT registered businesses for VAT return periods beginning on or after 1st April 2022.
HMRC has published a factsheet of compliance checks and information on what businesses can do to avoid being charged penalties.
The factsheet CC/FS69 sets out the penalties that will apply if MTD compliance is not followed. It is not clear when penalties will start to be applied.
In particular, there is a new £400 per return penalty if you file a return but do not use functional compatible software.
There are additional penalties if the business does not keep its records digitally. HMRC may charge you a penalty of between £5 to £15 for every day on which the business does not meet that requirement.
Key extracts from HMRC guidance include:
You must file your VAT return using functional compatible software
Functional compatible software means a software program, or set of software programs, products or applications (apps) that can:
- record and store digital records.
- provide HMRC with information and VAT returns from the data held in those digital records.
- receive information from HMRC.
You must keep records digitally
You must keep some records digitally within your functional compatible software. This is known as your ‘electronic account’. Your electronic account must contain:
- your business name, address and VAT registration number.
- any adjustments from calculations you make outside your functional compatible software for any VAT accounting schemes you use.
- the VAT on goods and services you supplied, meaning everything you sold, leased, rented or hired (supplies made).
- the VAT on goods and services you received, meaning everything you bought, leased, rented or hired (supplies received).
- any adjustments you make to a return.
- the ‘time of supply’ and ‘value of supply’ (value excluding VAT) for everything you bought and sold.
- the rate of VAT you charged on goods and services.
- your reverse charge transactions, where you record the VAT on the sale price and the purchase price of the goods and services you buy.
- copies of documents that cover multiple transactions made on behalf of your business, like those made by volunteers for charity fundraising, a third-party business or employees for expenses in petty cash.
All transactions must be contained in your electronic account, but you do not need to scan paper records like invoices and receipts.
Please contact us if you need assistance in complying with MTD.
Disclaimer: The information in this article is provided for general information only and does not constitute legal or professional advice. We cannot accept responsibility or liability for any actions you may take, or not take, based on this information.