Over the course of the last few months, businesses throughout the UK have braced themselves for the introduction of making tax digital for VAT (MTD). While a lucky few ‘complex’ businesses have a six-month deferral, most have had one date in mind: 1 April 2019.

However, I have received numerous questions about when businesses should sign up to the new system. Timing your registration must be carefully timed to ensure that you don’t sign up too soon.

The significance of 1 April 2019

The first and most important message is that for most businesses MTD affects VAT return periods beginning on or after 1 April 2019. So, for example, if your last VAT return ended on 28^th February 2019 and you report on a quarterly basis, the first VAT return affected by MTD ends on 31^st August 2019. You don’t need to submit your first VAT return using MTD compatible software until 7^th October 2019.

This means that some businesses will still be entitled to submit VAT returns for periods commencing before 1^st April 2019 using HMRC’s existing portal (up to 7 July 2019 in some cases), even though they are not complex and hence cannot defer their obligation to file under MTD.

Of course, the MTD rules don’t only cover how VAT return data is sent to HMRC. Affected businesses must also keep digital records and, from next year, there must be digital links between the underlying accounting records and the software submitting the return data. However, most businesses are quite rightly currently focused on ensuring that they have the compatible software technology capable of submitting accurate VAT return information in time for the new rules.

Shouldn’t I sign up now?

HMRC has recently announced that businesses can sign up to use the MTD portal before the obligation to use the new system exists. While this is good news for those businesses whose software providers have created a compliant solution that the organisation is happy to use straight away, it means that other taxpayers may inadvertently sign up earlier than required. 

What’s the worst that can happen if I sign up early?

On a practical level, signing up earlier than necessary means that you may rush the implementation of the new system and this could affect the accuracy of the VAT return data submitted to HMRC, providing scope for HMRC to charge penalties for any inaccuracies. Beyond that, many businesses have established a direct debit with HMRC to settle their VAT liabilities. By signing up early, these direct debits may be cancelled, meaning that even if the VAT return data is accurate, payment may inadvertently be late, providing scope for the default surcharge regime to apply.

So when should I sign up?

HMRC’s guidance states that if you pay your VAT liability by direct debit, you should not sign up to MTD until five working days after the submission of the last VAT return before the MTD rules are to apply, and you must have signed up at least seven working days before the first MTD return. 

If you pay by other methods, you shouldn’t sign up within 24 hours of submitting your last non-MTD return but you must sign up at least 72 hours before filling your first MTD VAT return. 

All clients of Guilford Accounting for whom we file VAT returns have been advised that we will sign them up at the appropriate time over the next few months. If you are unsure when you should sign up please get in touch.

 

Noel Guilford