23 June
By Heather Naylor
Categories: Government/HMRC/Industry News/Making Tax Digital/VAT

Making Tax Digital for VAT – New penalties for non-compliance

HMRC have issued guidance for VAT-registered businesses and their agents on how to avoid penalties for non-compliance with the Making Tax Digital for VAT (MTD) rules.

As outline in our previous news article, MTD compliance was extended to most VAT-registered businesses, regardless of turnover from April 2022.  In order to meet HMRC’s compliance, under MTD these businesses must maintain certain records digitally and file their VAT returns through compatible software. 

Within the guidance there are new penalties for non-compliance which may be charged. 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 £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.

You must use digital links to transfer or exchange data

You must use the checking functions within your software

You must sign up to MTD with HMRC

You can read the full factsheet which tells you in more detail what to do to avoid being charged a penalty on the Government website here.

Our Digital Team are here to help

Please contact us by emailing mtdforvat@naylorwintersgill.co.uk if you require any support or assistance in complying with MTD and a member of our digital team will be happy to help you.

With many of our clients already utilising cloud accounting software, our certified cloud accounting advisors are also on hand to help you with your accounting software selection, making sure you are using the most appropriate solution for your business now and in the future.