In a little under two months, the majority of VAT registered businesses with turnover exceeding the £85,000 threshold will be required to file VAT returns digitally. Under Making Tax Digital (MTD), businesses will be required to use software to keep accountancy records and file VAT returns to meet the new requirements.
The current HMRC portal that many businesses use to currently file their VAT figures will no longer exist for those that fall into MTD. Instead, there needs to be a digital link straight from the accounting software to HMRC to file the VAT return.
What is MTD (Making Tax Digital) trying to achieve?
MTD is part of the government’s wider plan for greater transparency in the tax system through improvements in the efficiency of tax collection and detecting tax evasion.
Digitalisation of tax authorities is already happening in many countries such as Spain, Portugal, Hungry and Poland with many other countries set to follow suit. MTD for VAT is the starting point with other taxes likely to follow suit.
Key facts on MTD:
- MTD is applicable from the first VAT period starting on or after 1 April 2019;
- These businesses will remain in the MTD regime even if their turnover subsequently falls below the VAT threshold;
- If you are under the threshold you can opt-in to MTD voluntarily, although once you are in you cannot come out of the regime unless you deregister for VAT;
- For those under the threshold that do not opt-in to MTD they can continue to file VAT returns through the HMRC portal;
- Manual record keeping is not compliant;
- If you are near the threshold you need to keep an eye on your turnover, if you trip the limit you will fall into the regime;
- The VAT return itself is not changing, the frequency of submission and payment dates will remain the same;
- Eligibility criteria for special VAT schemes will not change;
- The same concessions that are currently available will remain, although you must apply for an exemption from HMRC for example on grounds of religion, disability, age or remoteness of location.
For businesses keeping their records in spreadsheet format these will not, on their own, be compliant. If you plan to continue with using spreadsheets you would need to use third-party ‘bridging’ software which enables the flow of data to and from HMRC. We are not advocating this as we believe this will only be a stop gap before MTD moves to the next stage and are therefore encouraging all clients with spreadsheets to fully adopt MTD compliant software.
MTD (Making Tax Digital) deferral for some businesses
There is a six-month deferral for a small proportion of businesses, such as those who are in a VAT group, unincorporated charities and annual accounting scheme users. Therefore, from 1 October 2019, all VAT registered businesses above the VAT threshold, will be in the MTD regime.
How can you prepare for MTD?
If you are already using accounting software, make sure you are on the latest version and that it is MTD compliant. HMRC have published a list of providers that are compliant, which can be found here: https://www.gov.uk/guidance/software-for-sending-income-tax-updates.
If you are not using compliant software or any software speak with your account manager as soon as possible to look at your options.
The timing of MTD is far from perfect with businesses contending with the implications of Brexit. There has been much debate recently as to whether MTD should be delayed. Although the Government has stated that it will keep VAT procedures as close to the current position as possible, if we leave the EU on 29 March this year without a deal, the Government has made no indication that MTD will be delayed!
Therefore, the message for businesses now is that MTD is not going away. Unless you are certain that your internal systems are already MTD compliant, you should get help now in reviewing this as there is not long to go!
Although accounting software is a means to become MTD compliant the benefits go much further and is a tool not to be ignored or underestimated. We are encouraging our clients to see a move to accounting software as a benefit to their business. There is huge potential for automating transactions and providing real-time information, meaning they can become smarter in how they spend their time.
Over the coming weeks we will be advising our affected clients of potential changes they may need to make to be compliant by April 2019.
Should you have any queries on how Making Tax Digital will affect your business or how a transfer to accounting software could be beneficial, please contact your account manager who will be happy to discuss your business requirements with you.