New penalties introduced for Making Tax Digital for VAT non compliance

by Michael Blaken

Published on 6th July 2022

Now VAT registered businesses have been drawn into the Making Tax Digital for VAT scheme, HMRC has issued guidance on how to avoid penalties for non-compliance.

Any businesses not complying with the Making Tax Digital (MTD) for VAT rules face a potential fine. Notably, there is a new £400 per return penalty for any business filing a return but not using compatible software.

There are also penalties for any business not keeping records digitally. HMRC may charge a penalty of between £5 to £15 for every day on which the business does not meet that requirement.

The guidance includes:

Filing VAT returns using functional compatible software

This means a software program, or set of software programs, products or 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

Keeping 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:

  • 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, such as those made by volunteers for charity fundraising, a third-party business or employees for expenses in petty cash.

All transactions must be contained in the electronic account, but you do not need to scan paper records like invoices and receipts.

MTD for VAT can be complicated, so if you would like any help or advice, get in touch with Swindon accountants at Optimum or Cheltenham accountants at Optimum.

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