Hopefully by now, most businesses will be aware of the forthcoming Making Tax Digital (MTD) initiative by HM Revenue & Customs (HMRC). This represents one of the most significant changes to the tax system since the introduction of Self-Assessment 22 years ago but how prepared are you for the changes?
With the first part of the initiative, MTD for VAT, coming into effect in April 2019, here is a rundown of the most common questions that we have been asked:
Who will be affected?
The first to be affected are VAT registered businesses, including landlords and self-employed individuals, who have a taxable turnover above the VAT threshold (currently £85,000). With effect from their first VAT period commencing on or after 1st April 2019, it will be mandatory for those businesses to keep their VAT records in a digital format and submit their VAT Returns to HMRC using MTD compatible software. VAT registered businesses with a taxable turnover below the VAT threshold may adopt the MTD provisions voluntarily, if they wish to do so, but must tell HMRC first.
Going forward, MTD for VAT is likely to become mandatory for all VAT registered businesses rather than being restricted to those with a taxable turnover above the VAT threshold however HMRC have not yet confirmed this.
Are there any exemptions?
Other than those VAT registered businesses which have a taxable turnover below the VAT threshold, there are limited circumstances in which MTD for VAT will not apply. Exemptions may apply where it is not reasonably practicable to use digital tools due to age, disability or remoteness of location, where the business is run by members of religious societies whose beliefs are incompatible with the use of electronic communications or where subject to an insolvency procedure. These exemptions are not automatic and an application must be made to HMRC if you feel that an exemption applies.
I already submit my VAT Return via HMRC’s online portal – is this the same thing?
No, keying the VAT Return entries in via HMRC’s online portal will not be allowed. Instead, the VAT figures must be submitted direct from the business accounting records either via the use of MTD compatible accounting software or via bridging software.
What is “bridging software”?
This is special software that can be used to connect accounting software and spreadsheets digitally to HMRC’s systems.
I currently use an accounting software package - how do I know if this is MTD compatible?
A list of the software suppliers who offer MTD compatible software is available on HMRC’s website at https://www.gov.uk/guidance/software-for-sending-income-tax-updates#VAT however you should check with your accountant or software provider that the product you are using is covered.
I currently keep my records on spreadsheets – will I still be able to do this?
Yes but the spreadsheet will need to be linked digitally to HMRC’s systems via bridging software. Where multiple spreadsheets are used, these will all need to be linked digitally. Re-keying of data will not be allowed.
I currently keep my records manually – what do I need to do?
You will need to keep digital records, either via a MTD compatible accounting software package or via a combination of spreadsheets and bridging software. Whichever option you choose, you should act now to ensure that you are up and running in time for April 2019.
Can my accountant file my VAT Return for me?
Yes, and the help provided could be as much or as little as you need…from simply submitting approved VAT Returns on your behalf based on accounting records prepared by you through to assisting with the whole bookkeeping process.
Your accountant will also be able to advise you on the best record keeping system for your business and provide help with implementation and training, where required.
I have heard people talking about “cloud accounting” – what is this?
Cloud accounting is simply a means of accessing accounting software via the internet rather than it being installed onto the hard drive of your computer. There are many providers and accounting packages can range from very simple systems suited to small businesses through to systems that offer in depth financial reporting options and systems that are tailored specifically to businesses operating in certain sectors.
Cloud accounting can bring many benefits to the business such as ease of access, automatic updates and backups, the ability to email quotes and invoices on the go, automatic bank feeds and improved collaboration with your accountant through real time access to business data and financial reports.
What steps should I take now?
Speak to your accountant! Confirm whether MTD for VAT will apply to you, review your current method of record keeping and, where necessary, make the changes required to ensure that you are ready for MTD for VAT in April 2019. Remember, making changes to record keeping systems can take time and training and, with less than 5 months to go, you will need to act fast!
What about MTD for Income Tax and Corporation Tax?
MTD is a major initiative and will be extended to cover Income Tax for businesses, Income Tax for individuals and Corporation Tax however HMRC have confirmed that this will not become mandatory until April 2020 at the earliest. Full details of the requirements have not yet been provided but we do know that this will represent a significant change to the way in which these taxes are reported … watch this space for updates!
The information provided in this article is correct at the date of publication and it is important to note that tax rules may be subject to change. Rennie Welch LLP accepts no liability on the basis of this article and professional advice should always be sought based on specific circumstances. For advice or assistance please contact Lynn Miller at Rennie Welch LLP either by email at email@example.com or by telephone on 01573 224391.
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