HMRC cites Brexit concerns for firms amid lenient stance on digital VAT fines

By James Nadal | 22nd August 2019 | 8 min read

HMRC has cited businesses’ need to get ready for Brexit as a factor in adopting a lenient approach on penalties during the first phase of Making Tax Digital for VAT.

Revealing that 120,000 firms failed to sign up for MTD before the first submission deadline, officials reiterated that there would be a so called ‘soft-landing’ for firms – a position it has been promising since before the reforms took effect.

But, interestingly for accountants observing HMRC’s approach, it also highlighted the impending 31 October date for the UK leaving the EU as another reason to cut companies some slack with their compliance, acknowledging the work that many would need to put in.

In a statement, HMRC said of the 120,000 firms that missed the deadline: “Under normal circumstances, a business would have received a fine of at least £100 (and up to £400) for not submitting a VAT return by 7 August through MTD software.

“But HMRC is not enforcing penalties and is instead supporting businesses through the transition to MTD, especially at a time when they are fully focused on preparations for leaving the EU on 31 October.”

No fines, no cause for concern?

Right now, yes. Many firms will breathe a sigh of relief that they won’t be penalised.

However, there is a big risk of complacency creeping in, which could eventually land companies in trouble.

HMRC has previously stressed that it will not penalise those businesses who are doing their best to comply. The latter part of that sentence being key. So, in the long run, simply taking no action, being lazy or complacent won’t cut it.

How much do firms risk being fined?

Under normal circumstances, the level of a penalty is linked to the (gross) turnover of the VAT registered business:

•          If 'Total Turnover' = £22,800,001 and above then the maximum penalty assessable is £400

•          If 'Total Turnover' = £5,600,001 to £22,800,000.99 then – £300

•          If 'Total Turnover' = £100,001 to £5,600,000.99 then - £200

•          If 'Total Turnover' = £100,000.99 and under then - £100

What’s the best long term answer?

The best way to get business clients fully on board with MTD for VAT and not worry anymore about compliance is online bookkeeping software that is MTD compatible - capable of communicating with HMRC in the required way.

We would, of course, suggest looking at KashFlow, which entirely meets the MTD for VAT requirements, ensuring firms have everything in place for future so they never miss an MTD for VAT deadline. It enables them to:

  • Keep and preserve digital records
  • Create a VAT return from these digital records
  • Communicate and link up directly with HMRC, meaning their data goes straight to the right place every time
  • Reduce the time spent searching through files by keeping their books structured, simple and in one place

Is there an alternative?

We realise bookkeeping software is not always the right solution for all accountants. Alternatively, consider IRIS VAT Filer, our bridging software solution, which can bring you up to speed in the short term.

IRIS VAT Filer automatically connects to HMRC allowing the you to import VAT data from various sources and submit directly to HMRC. It retrieves client data such as previous submissions made under MTD, current VAT obligations, liabilities due and payments already made. All of which makes your clients’ submissions much more straightforward.

Time to get ready for the next deadline?

It won’t be long before the next deadline. So, for any businesses who have missed the first, it’s time to get a digital VAT solution in place sooner, rather than later to avoid further headaches and stress.

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