More than one in ten VAT-registered businesses missed the first mandatory deadline for submitting quarterly returns through Making Tax Digital (MTD).
The main submissions deadline came and went on 7 August 2019, and around 116,000 firms with VAT quarters ending on 30 June did not sign up in time.
A further 5,000 businesses with commitments to file monthly VAT returns suffered the same fate by not registering before 31 July.
The figures of non-compliance were a fly in the ointment for HMRC, however, with more than a million of the UK's 1.2m businesses with VAT duties registered for MTD.
The Revenue confirmed that around 370,000 of the 490,000 VAT-registered businesses complied with MTD in August.
More than a million businesses have been mandated for MTD so far, including around 200,000 firms with annual turnover below the VAT-registration threshold.
Jim Harra, deputy chief executive at HMRC, said:
"We are very pleased that more than a million businesses have signed up for MTD and thank them for joining."
HMRC advises firms that did not register for MTD in time for the August deadline to file their return as they have done previously, such as through the VAT portal.
Common issues to iron out
While the scale of non-compliance with MTD was relatively small, a pattern of issues emerged that the Revenue will need to resolve in the coming months.
Some business owners experienced last-minute issues authorising MTD-compliant software to submit their VAT return before the first staggered submission deadline.
For instance, some individuals received a verification email from their software provider and failed to click it to authorise the software prior to submission.
Others required help to comply with keeping digital records, with some business owners caught out by the requirement to record minimum daily sales.
Obduracy was the most widely reported problem, as some people continued to use manual spreadsheets only for bridging software to come to the rescue.
Criticism was also aimed at HMRC which failed to populate some VAT return obligations on its side, rather than there being an issue with the software itself.
"Light-touch approach" to penalties
Usually, non-compliant businesses would expect a fine of up to £400 for missing their VAT return deadline.
But HMRC is adopting a light-touch approach to penalties until 1 April 2020, to give businesses enough time to adjust.
"Our ambition is to help businesses moving to MTD to get it right, not to penalise them.
"HMRC's decision not to enforce penalties will help businesses transition to MTD without fear of getting it wrong."
Firms that did not use software only need to pay the tax they owe in 2019/20, and they can expect a letter from the Revenue urging them to sign up to MTD.
From 2020/21, businesses that miss VAT return deadlines face fines of at least £100, although the actual amount depends on a business's turnover.
What is Making Tax Digital?
Some taxpayers may only be aware that "HMRC is changing the way you file your taxes" through the television adverts.
This outlines the concept of MTD, which sees businesses as the first group of taxpayers to be mandated into the Government's flagship scheme.
Most VAT-registered businesses with annual taxable turnover of more than £85,000 have to keep digital records for periods starting on or after 1 April 2019.
Talk to us about MTD for VAT.