Making Tax Digital - Are you Ready?
If your business is registered for VAT, has a taxable turnover of more than £85,000 and you aren’t currently operating from under a large rock, you’ve probably heard of ‘Making Tax Digital’ - also known as MTD. If you haven’t, it’s worth taking some time to read up on the new rules and regulations (and starting to implement them!), as they are going to have a significant impact on the way businesses collect, report and submit data for VAT returns from the 1st April 2019.
Dated: 17 April 2019 Author: Michelle Eccleshall, Commercial Services Manager
Over the last few years, HMRC has been committed to becoming one of the “most digitally advanced tax administrations in the world” and has been taking steps to develop their in-house technology and processes so that tax can be recorded, calculated and paid as efficiently and effectively as possible by individuals and business owners in the UK. VAT returns previously could be submitted online, but MTD takes things one step further by requiring all eligible businesses keep VAT records digitally and file their VAT returns using MTD compatible software such as Xero, QuickBooks or FreeAgent (the full list of compliant software can be found on the government website here: https://www.gov.uk/guidance/find-software-thats-compatible-with-making-tax-digital-for-vat).
As with many new regulations, the government recognises that there could be a few teething issues in the first year of MTD. In this year’s Spring Statement, Chancellor of the Exchequer Philip Hammond stated that:
“The government can confirm a light touch approach to penalties in the first year of implementation. Where businesses are doing their best to comply, no filing of record keeping penalties will be issued. The focus will be on supporting businesses to transition…”
Though the majority of businesses will be able to transition to the MTD scheme without issue with the help and support of their accounting professionals, the government has also recognised that there will be some exceptions for whom MTD cannot be implemented (for example, if it’s not reasonably practical for a business to keep and submit records digitally because of age, religious beliefs, disability or location, or if the business is subject to an insolvency procedure). There are also a number of businesses who don’t have to start following the new MTD rules until the 1st October 2019 – businesses including trusts, not for profits, local authorities and overseas traders. Though a ‘light touch’ approach to penalties has been promised, it’s worth seeking professional advice to find out whether the MTD rules apply to your business from the 1st April 2019 (or from the deferred start date of the 1st October 2019) if you are unsure, as even without a hefty financial penalty, the stress of having to rectify any MTD issues for HMRC at short notice is likely to add extra unwanted pressure to your business over the coming year!
Though we have yet to experience first-hand the impact of the new MTD regulations, the future of tax is definitely digital! The MTD rules and regulations are already on the cards for Income Tax and Corporation Tax, though the start date for these has yet to be confirmed. Latest government advice suggests that they will be phased in from April 2020 at the very earliest, but we’ll make sure our website and blogs are up to date as soon as we hear more about this.
If you’ve got any questions or concerns about Making Tax Digital, please Contact Us or take a look at our MTD Myths and Misconceptions or FAQs – we’re here to help keep VAT simple in this new digital era.