Small businesses warned of final Making Tax Digital for VAT deadline

Small businesses warned of final Making Tax Digital for VAT deadline
Dan Martin
Dan MartinDan Martin Content & Events

Posted: Thu 25th Aug 2022

Businesses will only be able to submit monthly or quarterly VAT returns using Making Tax Digital compatiable software from 1 November, the government has announced.

Since 2019, businesses with a taxable turnover over the VAT threshold of £85,000 have been required to comply with Making Tax Digital (MTD) for VAT regulations. The rules were extended to all VAT registered businesses, even if their turnover is below the threshold, on 1 April 2022.

Making Tax Digital requires firms to keep digital records and submit tax information to the government using MTD compatible software.

HMRC currently still allows businesses to use the exisiting online VAT service but in an update to agents on 17 November, it announced that the service will not be available to companies submitting monthly and quarterly VAT returns from 1 November 2022. From that point, they will need to sign up to MTD for VAT and use relevant software.

Businesses that fail to comply with the rules risk penalties. This includes:

  • up to £400 for every VAT return not submitted through "functional compatible software".

  • between £5 and £15 per day for not keeping the digital records.

  • between £5 and £15 per day for not using digital links to transfer data between pieces of software.

From January 2023, HMRC will introduce additional penalties for late submission of VAT returns and late payment of VAT.

According to the Institute of Chartered Accountants in England & Wales (ICAEW), approximately 10% of businesses above the VAT threshold and 55% of businesses below it still need to sign up to MTD for VAT.

Caroline Miskin of ICAEW's Tax Faculty said:

"It is perhaps surprising that HMRC has been as patient as it has with businesses that should have signed up to MTD VAT more than three years ago. Smaller businesses with turnover below the VAT threshold are being given much less time to comply.

"ICAEW is concerned that the closure of the online VAT return will bring to light a group of businesses that are unable to sign up to MTD VAT because of an issue with their VAT records or are waiting for a response to an application for digital exclusion exemption. Any business that is unable to comply must apply for a as soon as possible."

Businesses that file annual returns will still be able to use their VAT online account until 15 May 2023.

From April 2024, Making Tax Digital for Income Tax will be introduced. Businesses and landlords with an income of over £10,000 will be required to keep digital records and use MTD-compatible software to submit quarterly updates to the government.

Enterprise Nation Making Tax Digital resources

Making Tax Digital for VAT: New rules and how to register

Webinar: Prepare your new business for Making Tax Digital

Book a free discovery call with accountants and tax experts

Dan Martin
Dan MartinDan Martin Content & Events
I'm a freelance content creator and event host who helps small businesses and the organisations that support them. I'm also Enterprise Nation's Local Leader for Bristol. I have 20 years of experience as a small business journalist having interviewed hundreds of entrepreneurs from famous names like Sir Richard Branson and Deborah Meaden to the founders behind brand new start-ups. I've worked for a range of leading small business publications and support groups, most recently as head of content at Enterprise Nation where I was responsible for the prolific output of content on the company's blog and social media. I now freelance for Enterprise Nation as the website's news reporter and as the host of the Small Business sessions podcast. I'm based in Bristol where I run and host regular events with the local small business community in my role as Enterprise Nation's Local Leader for Bristol. I also have strong connections with other major business organisations in the south west region. In total, I've hosted over 100 events including conferences with an audience of hundreds for international brands like Xero and Facebook and live web chats from inside 10 Downing Street. With my partner, I co-run Lifestyle District, a lifestyle blog focused on culture, art, theatre and photography.

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