At the same time there will be further pain ahead for taxpayers as a new wave of digital tax changes takes effect.
HM Revenue & Customs has announced the arrival of “Making Tax Digital” for self-assessment will be delayed until April 2024. However, the same is not true of MTD for VAT which will apply for all registered traders from April 1 this year.
For those affected there is therefore little time left to prepare.
MTD for VAT has applied for VAT-registered businesses with turnover above the £85,000 threshold since April 2019. The change is that all registered traders, including those smaller businesses with turnover less than the threshold, will be forced to adhere to the digital rules.
Those being caught from April will typically be businesses who make “zero-rated supplies”, selling items which are exempt from VAT – this includes most food and drink, many products for disabled people and children’s clothing. These businesses must be registered so they can recover VAT on their expenses.
For these traders and any new businesses, time is running out. Here are four key points to bear in mind.
1) Sign up in good time.
You can sign up for MTD online. If you pay by direct debit you need to sign up at least 7 days before the first MTD return is due and at least 5 days after the last non-MTD return.
You will need the following information; Government gateway ID and password, VAT number, date of VAT registration, postcode and place of business, the amount from your most recent VAT return (box 5) and the month submitted. You will also need to confirm the MTD compatible software you are using.
2) Examine your record keeping
You will be required to keep records digitally using approved software. This software will need to create the VAT return and enable you to submit it to HMRC.
The rules require you to keep some key records digitally including, name , address, VAT registration number, and details of any VAT accounting schemes in use, together with full details of each invoice. These records must be kept for six years.
You may be able to claim an exemption if you are unable to use a computer or access the internet due to age, disability or remote location. These rules apply whether or not you use a VAT scheme such as flat rate, margin or retail scheme.
3) Be aware of penalties
There are separate penalties for late submission of a VAT return and for late payment. Both operate on a points based system. If you miss a submission deadline, HMRC will issue you one penalty point. If you accrue too many points in a given period, a penalty of £200 will be applied by the authority.
Your points threshold will depend on how frequently you submit a VAT return. This means those making annual submissions must accrue two points before a penalty is applied, quarterly submissions must hit four and monthly filers two.
Separate tallies will be recorded for VAT and income tax with separate penalties subsequently applied.
However there is some good news. Following a recent government announcement, these penalties will not now apply until January 2023 rather than this April as originally planned, so HMRC can test its systems.
4) Get help to grow your business
The Government has introduced a scheme called “Help to Grow: Digital” to encourage companies with between 5 and 249 employees to benefit from digitisation. Unfortunately this does not apply to sole traders.
Companies can receive up to £5,000 to cover the cost of 50pc of the approved software used. The list of approved software providers is limited but includes Sage and QuickBooks.
I have a general concern about the way these changes are being introduced. Clearly businesses will welcome the additional time to prepare themselves. However, the delay on penalties seems to be for the benefit of HMRC rather than taxpayers.
The delay in implementation of MTD for self-assessment is also welcome but, even allowing for Covid, it gives the impression of inadequate planning.
I would have more confidence in the process if the Government had recognised the timescales that would be involved at the outset and stuck to them. It was recently revealed by accountants Saffery
Champness that just 9 people remain from the 877 who originally signed up for the MTD self-assessment pilot, hardly a ringing endorsement of forward planning.
Tax Hacks is written by Mike Warburton, previously a tax director with accountants Grant Thornton, and is published twice a month on Tuesdays.