'Soft landing' for digital tax accounts endorsed

A ‘soft landing’ to help taxpayers who may otherwise struggle with some of the IT demands of Making Tax Digital has been welcomed -- partly for having the force of law. 

In VAT notice 700/22, HMRC says businesses will not be required to have digital links between software programs for the first year of mandation, points out a pleased CIOT.

It means that HMRC will accept the use of ‘cut and paste’, or manual transfer, as compliant for VAT periods commencing between April 1st 2019 and March 31st 2020.

But the scope of the soft landing does not extend to the actual submission of the VAT return itself, which must be via API-enabled software, warned the Chartered Institute of Taxation.

“It does not allow affected businesses to simply continue typing the VAT return figures into HMRC’s portal,” the institute said after publication of the notice, which has the force of law.

Reassuringly however, HMRC has announced that taxpayers will be “given a period of at least 12 months before they will be charged any late submission penalties” under MTD.

In the future, HMRC will move to a new points-based penalty regime (currently in the draft legislation stage), likely to apply from April 2020, a year after the MTD-VAT start date.

Before then “clarity on how the general soft landing on late submission penalties will apply” is being sought from HMRC particularly for firms mandated into MTD for VAT in 2019/20.

“It would appear that VAT registered business may still be subject to the existing, heavily automated VAT default surcharge regime,” says CIOT’s John Cullinane.

“Robust systems will need to be implemented by HMRC to ensure that this soft landing is fairly and consistently applied, with the least amount of aggravation for businesses”.