MTD is a government initiative that spells the end of paper accounting and aims to make it easier for traders to keep up to date with their finances. Whilst it was originally announced that MTD would be introduced during 2018, subsequent revisions have meant that VAT-registered businesses will essentially pilot the scheme.
From April 2019, Making Tax Digital will be mandatory for organisations with a turnover that exceeds the current threshold for VAT registration (£85,000), and will require relevant businesses to keep digital records and file quarterly returns online through ‘functional compatible software’.
Making Tax Digital for VAT: First Steps
Under MTD, businesses will be required to maintain digital records via approved software. The following information will need to be kept:
- The name and address of the VAT-registered person, plus their primary business address.
- Details of any VAT accounting schemes that are used.
- The VAT registration number.
- For both sales and purchases, details concerning: the time of supply; value of supply; and the rate of VAT charged (or the amount of recoverable input tax).
- For the relevant accounting period, the necessary figures for the VAT return as well as any adjustments.
- The values of the following outputs (exclusive of VAT): standard, reduced, or zero-rated, or those deemed outside the scope/exempt.
- Such information must be recorded electronically by the earlier of: the date by which the return is due or made for the relevant period.
Again, it is worth considering the phrase ‘functional compatible software’. HMRC have confirmed that businesses may utilise several different platforms to perform the functions listed above, provided that these are digitally linked.
Making Tax Digital for VAT: Things to Consider
HMRC is consulting with a range of stakeholders regarding the scheme, and concerned taxpayers should note that there are likely to be amendments/updates in the coming months. However, there are some items to consider when planning a strategy to handle MTD:
- There is unlikely to be any HMRC-approved software – and, moreover, it will not be free. Businesses will need to be mindful of the reporting requirements and seek (and pay for) appropriate software of their own accord.
- For some businesses, a major shift will be required, even if a move to digital accounting has already been made. Preparing a VAT return does not always mean pulling out sales and purchase figures and then transferring data to a return – additional calculations are almost always required, and often these are completed via spreadsheet or other manual process. Even bigger organisations still operate with a certain number of manual elements within their accounting processes. Alternatively, it may be that the current software utilised is not compatible with MTD. A review of existing systems will be required (see below) well in advance of the April 2019 deadline.
- The deadline imposes a short timeline in which businesses may have to drastically alter their processes, which could prove challenging.
The good news is that it is expected HMRC will grant some leniency within the first year of the scheme to give businesses time to adjust. During this time, record-keeping penalties will likely not apply.
That said, it’s vitally important that businesses work towards the April 2019 deadline – leaving it until the last minute could hamper productivity and put the workforce under unnecessary strain. The following section will give some advice as to how to begin, but it’s strongly advised that concerned parties seek the advice of an experienced accountant or certified tax adviser in order to ensure compliance.
Making Tax Digital for VAT: How to Prepare
No matter the size of your organisation, system changes can easily take a year to research, implement and monitor. As such, it’s crucial that all relevant businesses begin to assess their existing systems and make the necessary adjustments sooner rather than later:
- Assess your current internal reporting systems and controls, and bring all related teams (e.g. purchasing, accounts, IT and software) up to speed. Work together to devise a plan to get ready for MTD and ensure that additional budget is in place (if required) to cover associated costs and business disruption.
- Examine how easy it will be to submit the necessary information to HMRC. Will you need to purchase additional software? If software is used currently, will it be compatible?
- Undertake an in-depth examination of your VAT adjustments. How are these transmitted to your VAT account? Are there any errors?
- Scrutinise any related data. Is it precise and secure? Is it reviewed regularly?
Offering a complete service to assist with your MTD requirements, IBISS & Co’s team of expert accountants and specialist tax advisers can help with every step of the operation – from a review of your existing systems to forming new compliance-related strategies. We will keep you apprised of all the latest HMRC updates and ensure minimal business disruption. Contact us today to learn how to make your MTD transition a successful and smooth process.