The introduction of HMRC’s Making Tax Digital (MTD) for VAT programme, scheduled for April 2019, will bring a fundamental change to the way that businesses submit VAT returns.
To ensure that they are able to fully comply with the new rules and to avoid potential fines for filing returns incorrectly, it is essential for organisations to start preparing now.
Our team of tax accountants have broken down everything you need to know about Making Tax Digital so you can get up to speed, and just as importantly, ensure you avoid any fines come April next year.
Making Tax Digital (MTD) is a key component of HMRC’s plan to become a world-leading digital tax authority. The plan is for MTD to be applicable to all VAT schemes and registrations, whether they be annual, retail, flat rate or partial exemption etc.
All businesses with a taxable turnover above the VAT registration threshold, currently set at £85,000 per annum, will have to comply with the new guidelines. While it may not be compulsory, businesses with a turnover below the current threshold may also opt to file their VAT returns through MTD if they please.
Businesses who fall within the MTD spectrum must use, according to HMRC, "functional compatible software" to meet the new requirements. Said software will allow the organisation to maintain digital business records and files relevant VAT information electronically.
While many businesses wait for full clarity from HMRC on what falls into the category of "functional compatible software" it appears many companies will only have a short window to ensure that they are compliant with the new rules.
One of the most significant points of MTD for VAT is that under the new rules, VAT returns will need to include a much wider range of information than is required in the existing system.
In addition, the new rules bring another facility to the table which will allow businesses to submit supplementary data to HMRC.
The hypothesis is that improving access to data will speed up the returns system, allowing HMRC to process VAT refunds and deal with other queries faster and more efficiently.
Businesses that fall within the guidelines of MTD will need to comply with the new rules for VAT-return periods starting on or after April 1st, this year.
For example, if your business is currently submitting VAT returns every calendar quarter, under the new rules you will need to comply with MTD for the period ending 30 June 2019, and each quarter thereafter.
Business can expect other sections of tax compliance to follow suit as HMRC are planning to roll out MTD across the board, with April 2020 being cited as a potential introductory date.
Despite being a little less than a year away, businesses should start preparing for MTD now to ensure their compliant operations are established and any adjustment problems are addressed well ahead of the implementation.
The first thing to establish is that the organisation is using an online accounting package which will be deemed functional for MTD.
Where multiple software programs are used to record VAT data, such as spreadsheets, the new rules demand there be a digital link established between each piece of software.
As it will be most efficient to switch at the end of an accounting period, firms should prepare for the transition to a digital accounting system well ahead of their year end.
For businesses currently maintaining their VAT records using an online accounting package, this should be sufficient for MTD compliance.
However, to ensure peace of mind, it is also important to speak to a third-party advisor or software provider who can confirm compliance ahead of the April 2019 deadline.
This way, they will be kept up to date with key MTD developments as the April 2019 deadline draws closer, whilst allowing businesses to access the software and VAT expertise, where necessary, to move their records onto a digital platform.
Once in place, the reduced paperwork and administration associated with filing VAT returns digitally should ease pressure around tax and reporting deadlines and reduce the burden of administration.
Other benefits of the programme to business owners include improved access to real-time information, aiding cash-flow planning, and more efficient processing of tax filings and related queries.
By taking steps now to learn about how to switch to a digital system and seeking specialist support, businesses can ‘future proof’ their accounting software and ensure they are fully compliant in good time.