HMRC has introduced new guidance to help businesses avoid incurring penalties when keeping certain records digitally and filing their VAT returns using software.
The guidance, entitled Compliance checks: How to avoid penalties for Making Tax Digital for VAT – CC/FS69 covers the following key areas:
- File your VAT return using functional compatible software
- Keep records digitally
- Use digital links to transfer or exchange data
- Use digital links to transfer or exchange data
- Use the checking functions within your software
- Sign up to MTD
Filing your VAT return using functional compatible software
‘Functional compatible software’ means a software program, or set of software programs, products or applications (apps) that can:
- record and store digital records
- provide HM Revenue and Customs (HMRC) with information and VAT returns from the data held in those digital records
- receive information from HMRC
- If you file your returns, but do not use functional compatible software, we may charge you a penalty of up to £400 for every return you file.
Keeping records digitally
You must keep some records digitally within your functional compatible software. This is known as your ‘electronic account’. Details of what need to be kept in this account can be found in the guidance here.
If these records are not kept digitally, penalties of £5 - £15 may be charged for every day on which this requirement isn’t met.
Using digital links to transfer or exchange data
If data is transferred or exchanged within and between software programs, apps or products (that make up functional compatible software), and the information forms part of your electronic account, this must be done using digital links.
Some examples of digital links are:
- linked cells in spreadsheets, including the use of ‘cell number/return’ functions
- emailing a spreadsheet containing digital records so the information can be imported into another software product
- transferring a set of digital records onto a portable device, such as a pen drive or memory stick, and physically giving this to someone else to import that data into their software
- XML, CSV import and export, and download and upload of files
- automated data transfer
- Application Programming Interface (API) transfer
Using the checking functions within the software
The checking functions within the software must be used to make sure your returns are correct before they are filed. If possible, a copy of the return should be downloaded before being filed.
If you file a return that contains errors, you will have to pay back any VAT that you owe. We may also charge you a penalty of up to 100% of the VAT you owe.
Signing up to MTD
You can sign up to MTD by going to www.gov.uk and searching for ‘VAT record keeping’. You must have functional compatible software in place before you sign up.
More information
For more information about MTD, please read VAT Notice 700/22: Making Tax Digital for VAT. Go to www.gov.uk and search for ‘700/22’.
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