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

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

In particular, there is a new £400 per return penalty if you file a return but do not use 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, and have the capability to both send and receive information to and from HMRC.

There are additional penalties if the business does not keep its records digitally. HMRC may charge a penalty of between £5 to £15 for every day on which the business does not meet that requirement. Records which must be kept digitally are:

• 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 recorded digitally, but you do not need to scan paper records like invoices and receipts.

For further advice visit this link or contact your accountant today.