In a rare show of compassion and tax relief for their “customers”, Her Majesty’s Revenue and Customs (HMRC) have said they will not levy penalties on around 120,000 companies. These private sector companies missed a major VAT filing & payments deadline under the new Making Tax Digital (MTD) regime.
The taxman could have issued surcharges and penalties running into tens of millions of pounds after one in four businesses failed to comply with the new online filing tax rules on time. Businesses that sign up to MTD must adopt HMRC-approved accounting software to comply with the new Value Added Tax return process. A key issue being faced by private sector taxpayers is that they are struggling to learn the new software systems, tax rules and obligations.
Compliance with MTD can be costly for taxpayers, with some of the HMRC-approved software costing as much as £1000 to acquire and install.
The government said in February that they would use a “light touch” approach to penalties, but this is the first time that HMRC has said that no fines will be issued – a huge tax relief. Officials said they would not levy penalties because businesses may be “fully focussed” on leaving the European Union on October 31st.
A YouGov poll carried out in May of 502 UK decision makers with up to nine employees revealed that fifty-seven percent of businesses felt “unprepared” for Making Tax Digital, with only twelve percent of respondents saying they felt “very prepared”, including self-employed people and independent contractor.
HMRC said that it wanted to support businesses through the transition, with Jim Harra, deputy chief executive of HMRC, saying: “Our ambition is to help businesses to get it right, not to penalise them.” The policy is designed to reduce human errors in tax return payments that cost businesses an estimated £9.9 billion last year.
About 490,000 businesses with sales above the VAT threshold of £85,000 were due to make a digital filing by August 7th, many for the first time.
Richard Wild, head of the tax technical team at the Chartered Institute of Taxation (CIOT), said that businesses and agents had faced “significant” difficulty complying and tax planning. HMRC’s phone lines had been “swamped” with people seeking support for these tax implications. He said that the non-compliance rate was therefore “high, but not surprising”.
The Federation of Small Businesses welcomed the move, but said that the grace period should be extended.
Michael Gove, the minister in charge of no-deal planning, told business groups last week that HMRC would be ordered to be supportive of viable private sector companies that were struggling in the event of a no-deal Brexit.
More information on the Making Tax Digital regime for VAT can be found at the government portal here. MTD for Income Tax is currently being piloted on a voluntary basis.
16th August 2019.
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