MTD for VAT - New Guidance on Penalties for Non-Compliance

HMRC have issued new guidance on the penalties that they impose for non- compliance with the Making Tax Digital (MTD) for VAT rules. In particular, there is a penalty of up to £400 for every VAT return a business files without using ‘functional compatible software’.

Functional compatible software means a software program, or set of software programs, products or applications that can:

• record and store digital records

• provide HMRC with information and VAT returns from the data held in those digital records

• receive information from HMRC

There are additional penalties if the business does not keep their records digitally.

HMRC may charge the business a penalty of between £5 to £15 for every day on which the digital record keeping requirement is not met.

To meet the digital record keeping requirement, the business’ functional compatible software must contain:

• the business name, address and VAT registration number

• any adjustments from calculations made outside the functional compatible software for any VAT accounting schemes used

• the VAT on goods and services supplied, meaning everything the business sold, leased, rented or hired (supplies made)

• the VAT on goods and services received, meaning everything the business bought, leased, rented or hired (supplies received)

• any adjustments made to a return

• the ‘time of supply’ and ‘value of supply’ (value excluding VAT) for everything bought and sold

• the rate of VAT charged on goods and services

• details of any ‘reverse charge transactions’, where the business needs to record the VAT on the sale price and the purchase price of the goods and services bought

• copies of documents that cover multiple transactions made on behalf of the business like those made by volunteers for charity fundraising, a third-party business or employees for expenses in petty cash

All transactions must be contained in the functional compatible software there is not a requirement to scan or upload supporting documents like invoices and receipts.