Approximately 10% of businesses above the VAT threshold and 55% of businesses below it still need to sign up to MTD VAT. They should sign up as soon as possible.
Around 10% of businesses have not signed up, but are filing their returns using MTD VAT software; these businesses do need to complete the sign-up process. HMRC has written several letters to businesses that have not signed up but has not, so far, charged the relevant filing method penalty.
Rather than charging the filing method penalty, HMRC is taking the approach of making it impossible, from 1 November 2022, for most businesses to file a VAT return other than using MTD compatible software. Businesses will be at risk of incurring default surcharge or, from January 2023, late submission penalties and/or late payment penalties and interest.
Businesses with taxable turnover over the VAT registration threshold of £85,000 have been required to comply with Making Tax Digital (MTD) VAT rules since 2019. The requirements were extended to all VAT registered businesses from their first VAT accounting period starting on or after 1 April 2022.
Caroline Miskin of ICAEW’s Tax Faculty says: “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”.
Some businesses file VAT returns annually; the online VAT return will remain available to these businesses until 15 May 2023.
The online VAT return will remain available to businesses with a digital exclusion exemption agreed with HMRC. This will help businesses that qualify for a digital exclusion exemption but are able to access the online VAT return when they need to file – perhaps with assistance from friends and family or through an agent. Those who cannot use the online VAT return should contact HMRC.
Find out more:
This guidance is created by the Tax Faculty, recognised internationally as a leading authority and source of expertise on taxation. The Faculty is the voice of tax for ICAEW, responsible for all submissions to the tax authorities. Join the Faculty for expert guidance and support enabling you to provide the best advice on tax to your clients or business.
More support on tax
ICAEW's Tax Faculty provides technical guidance and practical support on tax practice and policy. You can sign up to the Tax Faculty's free enewsletter (TAXwire) which provides weekly updates on developments in tax.Sign up for TAXwireJoin the Tax Faculty
The future of tax after COVID
As digital technologies transform society, the UK government is grappling with balancing the books while ensuring its tax system is fit for purpose. Join us as we take a look at the issues and challenges facing the tax system.Read more
More from the Tax Faculty
Stay up to date with the latest developments in tax by signing up to the Tax Faculty's weekly e-newsletter
Comprehensive support for Tax practitioners each month from the Tax Faculty and expert contributors.
Expert advice from the Tax Faculty's technical managers on all the developments in tax policy and practice.