Making Tax Digital, or MTD as its commonly known, is the Government’s plan to make the UK the world’s most digitally advanced taxation system. It will transform the way that we as taxpayers, both in business and as individuals transact with HMRC.
HMRC justify its introduction as they say they believe that MTD will help eliminate estimated annual tax losses of £8 billion due to avoidable tax errors.
Although a number of proposals dealing with Income Tax and Corporation Tax have been put back for political reasons, Making Tax Digital for VAT will go ahead for most VAT registered businesses from 1 April 2019.
For the first VAT return starting on or after 1 April 2019 affected businesses will be required to keep and submit their VAT returns in digital format. In most cases this means that some form of software or app will be required. The existing Government Gateway will be switched off for these businesses and they will no longer be able to simply enter the figures manually into the Gateway. Although spreadsheets can be used in some circumstances with the aid of bridging software this is not a route that I would recommend except for those exceptional circumstances where accounting software cannot deal adequately with their circumstances eg where VAT is calculated under the Tour Operators Margin Scheme.
Where a business has a turnover below the VAT registration threshold (currently £85,000 then it does not need to submit VAT returns in digital format although it may voluntarily choose to do so. If it decides that it doesn’t want to be in the MTD for VAT club then it can simply withdraw from it.
However, where a business is within MTD and its turnover falls to below the VAT registration threshold then it must continue to keep and file its records in digital format although it may of course choose to deregister for VAT entirely.
The current filing deadlines and payment deadlines will remain unchanged and VAT schemes such as annual reporting, cash accounting, flat rate scheme etc will all be available as before
HMRC say that although they will not be providing the software to keep digital records, some free as well as paid for packages should be available from commercial suppliers. How robust and useful these free packages will be remains to be seen. There are very good reasons to use a proper accounting system more than mere VAT compliance alone.
There are some exemptions from VAT quarterly reporting but they are fairly limited. Examples given include not having access to the internet because of remoteness of the business, medical grounds or on religious grounds.
If you fall into the category of business that will be required to submit VAT returns in digital format after April 2019 and you haven’t already invested in some software that will allow you to submit your data to HMRC in digital format then you are going to need to make sure that you have that up and running by April next year.
We have been looking at a number of products on the market and their suitability for our clients. As well as recommending the appropriate package to you we can assist with the initial set-up, the Chart of Accounts, training, as well of course as bookkeeping and support services. We would strongly recommend early adoption so that training can be completed and any issues can be ironed out before the go-live date.
If you have any questions please do get in touch with our MTD trained staff at any of our offices in Newbury, Hungerford, Swindon or Abingdon.