Making Tax Digital – Are you prepared?

Making Tax Digital (MTD) is actually happening, and soon!  Let us see how it will change things in your firm. Firstly, MTD will only affect the submission of VAT returns at this stage.  Proposals to widen the scope to include other business taxes have been put on hold until April 2020 at the earliest.

Here is what you need to know:

  • The MTD rules apply from the first VAT period starting on or after 1 April 2019.
  • Any business with taxable turnover above the VAT registration threshold (currently £85,000) must comply with the rules set out in the VAT Notice 70022.
  • For a small minority of businesses that have more complex requirements, HMRC made a decision to defer the rules by 6 months. These businesses have until
    1 October 2019 to start keeping records digitally and using MTD-compatible software to send their VAT returns to HMRC.
  • This applies to the following categories: trusts, ‘not for profit’ organisations that are not set up as a company, VAT divisions, VAT groups, those public sector entities required to provide additional information on their VAT return (such as government departments and NHS Trusts), local authorities, public corporations, traders based overseas, those required to make payments on account and annual accounting scheme users.
  • A business which is voluntarily registered for VAT as at 1 April 2019 will not have to follow the MTD rules at that stage but can choose to do so voluntarily. Should its turnover subsequently exceed the threshold, then the MTD rules will apply from the start of the next VAT period.
  • The new rules require all VAT return data to be submitted digitally i.e. a transfer of data directly from the accounting records. It will no longer be possible to enter the VAT return information manually online via HMRC’s website.
  • There will be a period of grace for digital links in the first year. However, this will not apply to ‘bridging’ software i.e. software introduced simply to enable a financial software package to submit the VAT return. In this case, transfers of data must be digital from day one.
  • A spreadsheet that is capable of recording and preserving digital records can still be used provided that it is API-enabled (Application Program Interface) and can transmit information digitally to HMRC, or if it is used in conjunction with bridging software.

We recommend you talk to your software providers at an early stage to ensure that software updates will be provided in time to comply with the new rules.

In our experience, not many of our clients, legal or otherwise, have made any preparations for MTD for VAT. I think, quite rightly, that most businesses are more interested and focused on Brexit rather than MTD for VAT. A Lords committee recently issued a scathing report on HMRC’s MTD for VAT program and criticised the unrealistic timeframe, lack of communication with businesses and the cost to businesses and called for a delay to the introduction.

In response to that HMRC have sent out over 200,000 letters to businesses advising them of the changes and how they can prepare – for the time being we, therefore, have to assume that it will go ahead and businesses need to start making plans now if they have not done so already.

Karl Millward, Tax Manager, Hazlewoods

HMRC has published a list of software suppliers who have compatible software:

https://www.gov.uk/guidance/software-for-sending-income-tax-updates#VAT 

and also suppliers who currently have products in development:

https://www.gov.uk/guidance/software-for-sending-income-tax-updates#Dev

At Hazlewoods we have a dedicated VAT team that can advise you of the changes from April 2019, together with the software requirements you will need, so please do not hesitate to contact us for assistance.

www.hazlewoods.co.uk

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