1.2 million businesses are required to adopt the new Making Tax Digital system for keeping financial records and submission of VAT returns.
As of the start of this month, only 30,000 businesses had signed up to the new MTD system and are currently being added at a rate of 2,000 per day.
VAT periods starting from or after April 1st 2019 will be administered digitally using the MTD system for businesses above the VAT threshold, which means they currently turnover more than £85,000 per year.
Businesses affected have been sent letters and should be adopt MTD-compatible software that can allow them to input their business records and transmit them to HMRC servers and keep the two synchronised.
Over 160 different software products are available ranging from free to subscription pricing.
It is a difficult task to get people transferred to a revolutionary new system and thus HMRC are promising to not apply penalties where people have given a decent attempt at adopting the new system but have fallen foul of deadlines. In addition, people unable to use the new system or those below the VAT threshold can continue to use the old method of filing.
A VAT helpline for people enquiring about being exempt from MTD but in general, you can avoid using MTD on the following grounds:
- Under VAT threshold
- Currently submit VAT returns voluntarily
- Cannot use digital tools (e.g. software issues, internet connectivity, literacy, etc)
- Religious reasons
- Insolvency
Applications made for exemption from using the system have a ten day turnaround so if people are looking for avoiding filing their next return using the system they should apply as soon as possible.