Making Tax Digital for VAT - update
From 1 April 2021, your systems must use digital links for any transfer or exchange of data between software programs.
During the soft-landing period, it was acceptable to copy and paste data for your VAT return. It isn’t now.
Penalties are as follows:
Annual VAT exclusive turnover
£22,800,001 and above
£5,600,001 to £22,800,000
£100,001 to £5,600,000
£100,000 and under
As announced by HM Treasury in March 2021, a new points-based penalties regime is proposed for VAT (including MTD) and income tax self assessments. The changes will apply to VAT customers for accounting periods beginning on or after 1 April 2022.
In a full inspection:
- HMRC will request all the records and come back with numerous questions relating to the whole return.
- If tax is found to be underpaid, HMRC can raise penalties of up to 100% of the tax that should have been paid.
- Usually only one year’s accounts are investigated, but if they find inaccuracies in that year, HMRC may then go back up to five more years or even further.
To reduce your chances of being inspected:
- always submit your tax returns on time
- make sure your returns are accurate and complete
- explain any changes from one year to the next.
Care with dividends
Companies Act 2006 requires that amounts available for distribution are restricted to the amount of distributable reserves available.
This usually happens when amounts are drawn before financial accounts are prepared and subsequently a sufficient retained earnings balance does not materialise.
One way to prevent this would be to maintain current and complete bookkeeping records throughout the year where management accounts could be prepared to assess the likely amount of distributable reserves.