Changes to the VAT return filing rules are approaching, requiring all existing businesses with annual turnover of GBP100,000 and all new businesses to file their returns online and pay their VAT bill electronically after April 1, 2010.

This means, for example, that where a small business created after April 1 falls short of the VAT registration threshold (currently GBP68,000), but wishes to register for VAT to claim back input VAT expenses, returns will have to be filed online.

HM Revenue & Customs (HMRC) is issuing letters to affected VAT-registered businesses to remind them of their online filing duty. In order to register online to file its VAT returns, the business must supply its “effective date of registration”; however, in response to reports to the Chartered Institute of Taxation (CIOT) that some businesses were unable to trace their VAT registration letter, HMRC is including this date on its letters to assist in the online registration process.

HMRC’s letters are not being delivered to agents, such as accountants, acting on behalf of the business; the CIOT highlights that is it therefore up to the business, where necessary, to forward the letter to its agent.

New businesses that have registered within the past year and which do not have a full 12 months’ history of filed VAT information may also be issued with a letter, based on HMRC estimates that turnover will exceed GBP100,000.

Once notified that they must file online, they must do so, even if their turnover does not reach the GBP100,000 threshold. There are two minor exceptions: first, where the business is subject to an insolvency procedure; and secondly, where the business is entirely run by individuals whose religious beliefs are incompatible with the use of electronic communications.

HMRC is offering businesses training on how to file their VAT returns online. The VAT Consultancy also offers a free guide, “Your Guide to Online VAT Returns For Individuals and Businesses,” on its website.

The National Hairdressers’ Federation (NHF), meanwhile, has raised the alert on another online filing matter that could adversely affect small businesses with fewer than 50 employees.

Businesses with over 50 employees have in recent years been required to file their Employer Annual Returns electronically, and regulations introduced in 2009 extended the provision to all employers barring a few exceptions.

Businesses that fail to deliver their Employer Annual Return online face penalties of up to GBP3,000 – even if a correctly completed paper return is received before the May 19 deadline.

It was thought that businesses with between one and five employees would be exempt from the requirement for another year, but it has been reported that HMRC is pursuing all employers under the extended rules.

The NHF claims the extended rules represent “a major blow for small employers”. The Federation claims that the element of choice has been removed, and says that not all salon employers use computers in their business, or have intermediaries who can file their returns electronically – a situation that no doubt applies to a number of other types of micro-business. The NHF also raises concerns over HMRC’s “poor record when it comes to data security”.

NHF general secretary Eileen Lawson argued that:

“This is typical of a government that says it is doing all it can to support small business when, in fact, it is doing the opposite. By forcing this move, ministers have once again highlighted their ignorance of how micro businesses which do not require computer technology in the workplace operate."

"The government must rethink this removal of choice for a sector that still values and very much uses the familiar paper system.”