With one month to go until HMRC system comes into effect, only 30,000 firms have signed up so far

HM Revenue and Customs has reminded more than a million businesses across the UK that they have only one month left until use of the Making Tax Digital (MTD) system becomes mandatory for VAT returns.

However, following accusations of a failure to sufficiently regard the needs of SMEs, the department has also said that, while it cannot promise that there will be no non-compliance penalties, it will take “a light-touch approach” to enforcement during the system’s first year in operation.

For companies with annual turnover in excess of the £85,000 VAT-registration threshold, all returns for periods beginning on 1 April or later must be filed using the MTD platform. This change – which will, in practice, take effect for all returns filed from 7 August onward – will apply to 1.2 million businesses across the UK, according to the government.

To help promote early preparation, some 500,000 companies were invited by HMRC to take part in pilot schemes beginning in October 2018. All 1.2 million affected firms have now been sent information on their obligations under the new system.

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As of today, only 30,000 of these businesses have registered for MTD – equating to 2.5% of those that need to so.

The government claims that about 2,000 new firms are signing up each day. But, even at this rate, it would take until October 2020 for all 1.2 million businesses to join.

Some onlookers have previously expressed concern about whether businesses – particularly SMEs – have been given sufficient time to prepare for the new system. A recent report from a parliamentary committee urged HMRC to delay the implementation date by a year, and accused the department of “not listening to small businesses”.

Today’s statement said: “HMRC has been clear that, during the first year of mandation, it will take a light-touch approach to digital record keeping and filing penalties where businesses are doing their best to comply with the law. But this does not mean a blanket ‘no penalties promise’.”

It added: “No business will be forced to go digital for their VAT returns if they are unable to. Anyone who is already exempt from online filing of VAT will remain so under MTD, and there is further provision for those who cannot adapt to the new service due to age, disability, location or religion to apply for an exemption.”

In order to use the MTD platform, businesses must implement a software product certified as compatible with the HMRC system.

Theresa Middleton, director of the Making Tax Digital programme, said: “There are over 160 software products for businesses to choose from with a range of prices, including some that are free, offering different levels of functionality to suit every business. It’s time to get on board and join the thousands of businesses already experiencing the benefits of MTD.”