As HM Revenue and Customs starts trialling its digital VAT reporting system, the clock is ticking to get your business ready for when Making Tax Digital for Business is launched in April 2019.
Inviting accountants and tax advisers to test this initial stage will allow HMRC to fine tune the Making Tax Digital system for pulling data from digital records kept on compliant software to produce a VAT report to be sent to HMRC via a quarterly basis.
Mel Stride, the Minister of State with responsibility for VAT, stated: “What I’m very keen to signal to everybody out there… is that we are serious about it and it will happen, so there be no question of any further delay on this, so we all need to make sure that we’re ready for it.”
When will Making Tax Digital affect you?
Once the testing period is complete, VAT-registered businesses whose annual turnover is above £85,000 (the current VAT registration threshold), will be required to enter the Making Tax Digital system from the first VAT period – not accounting period – that starts on or after 1st April 2019.
Any business whose Year-End date is other than 31st March should consider using Making Tax Digital systems far earlier. For example, a business whose Year-End is 30th June will be required to file its VAT obligations through software for the quarter ending 30th June 2019.
It is expected Making Tax Digital will then apply to those VAT-registered businesses with turnovers less than £85,000 from 2020. It is still unclear as to when reporting other taxes digitally will become mandatory, but as the framework will have already been put in place it will not be too long after.
In July 2017, HMRC revised its timeline for Making Tax Digital as follows:
- April 2018 – HMRC begins a wider, live pilot of VAT reporting
- April 2019 – Businesses with a turnover above the current VAT threshold of £85,000 will be required to maintain digital records – but only for VAT purposes.
- April 2020 – Businesses will not be asked to keep digital records or to update HMRC quarterly for other taxes until 2020 at the earliest.
If you would like us to help you through these changes then call us today on 0131 202 9888 or contact us online here to arrange a free initial consultation.
You can adopt Making Tax Digital early
VAT-registered businesses with turnovers below the £85,000 threshold can volunteer to enter Making Tax Digital before 2020 and benefit from more time to experience the process before they have no choice.
Jo Nockels, Senior Training and Technical Communications Manager at TaxAssist Accountants, said: “If you are still using paper-based records, you should seriously consider changing moving over to digital accounting now, so your business enjoys a much smoother transition to digital reporting when it is introduced. Trying to swap to digital record keeping and digital reporting at the same time may prove too daunting a task, so make the change gradually by starting the process now.”
Making Tax Digital exemptions
HMRC has made it clear that there will be very few exemptions for businesses not to adopt Making Tax Digital. A Freedom of Information request has revealed that there are very few organisations exempt from filing VAT returns online.
The HMRC FOI team stated: “We can confirm that there is a total of 78,205 traders on our system that are showing as having an exemption from filing online… The most common reason to be given an exemption from filing VAT returns online is insolvency. Approximately 4,000 organisations were excluded for reasons other than insolvency.”
Businesses may be exempt from Making Tax Digital if they are:
- Subject to insolvency procedures
- Run in their entirety by practising members of a religious society whose beliefs prevent them from using computers.
- It is not reasonable/practical.
The final category may include problems with internet access due to the remoteness of the business location or difficulties using computer equipment because of age, disability. However, other factors may be considered on a case by case basis. Any business already exempt from online filing of VAT returns will automatically be exempt from the MTD regime.
Making Tax Digital – next steps
HMRC has confirmed that it will not be providing any online ‘cloud-based’ software, instead it is working with commercial software providers to see how they can directly link together using Application Programming Interfaces (API). This process will allow your chosen software to automatically update you tax account, with information submitted to HMRC.
To make the change over from paper to digital accounting as easy as possible for small businesses, TaxAssist Accountants has already looked at many software solutions available for when Making Tax Digital starts. We can offer you digital accounting through our partners Intuit QuickBooks.
If you already use online accounting software (such as Xero, Kashflow, FreeAgent, Sage or others) then we can help you meet the requirements of Making Tax Digital too, regardless of which product you prefer to use.