In April 2020, Making Tax Digital (MTD) for VAT will be 1 year old and while a lot of businesses have made the switch to digital accounting and filing for their VAT, there could still be some issues in their current set up that needs to be addressed.
HMRC had a soft landing period for the first 12 months of MTD for VAT which allowed businesses to “cut and paste” their data between systems manually. From 1 April 2020, systems would need to be 100% digitally linked to comply with MTD’s requirements.
What is an MTD digital link?
Where you have more than one piece of software or if you use spreadsheets for part or all of your accounting, these systems would need to be connected together with no manual rekeying of data.
There are strict rules on what defines a digital link for MTD but there are two characteristics:
- Data is transferred electronically between software programs, products or applications.
- The transfer is automated, i.e. it does not need manual intervention such as copying over the data by hand or manually moving data between two or more pieces of software.
HMRC are keen for there to be digital links between systems as this reduces the potential for errors. Fewer errors mean a reduced possibility of penalties for business and it means that HMRC are paid the correct amount of tax.
As well as the necessity to have digital links between systems, HMRC will also end their suspension for late filed MTD VAT returns too from 1 April 2020.
These penalties are on a cumulative basis, based on the number of offences in the previous 12 months and can reach 15% of the VAT due, plus fines of up to 100% of undeclared VAT as a result of careless or deliberate inaccuracies.
So what should I do?
Over the next month, you need to be reviewing your current accounting system set up and ensuring that it is “MTD compliant”. Where you are manually keeping spreadsheets and rekeying data into your accounting system, an alternative way needs to be set up before 1 April 2020.
You also need to be aware of when your VAT returns should be filed (and paid) to HMRC and make sure that these deadlines are met every time.
Is it really worth risking thousands in penalties and fines when you could get a complete set up now to be compliant? Not only that, but the more your business is automated, the more you can focus on building your business and transform the way you work to make life much easier!
If you are worried about MTD for VAT and how it could affect your business or you want to automate your accounting function as much as possible, please contact Darren here or on 01634 731390.
The content in this blog is correct as at 19/02/2020. See terms and conditions.