Making Tax Digital for VAT is nearly here – what does it mean for you?
With less than two months to go until the first implementation of Making Tax Digital (MTD), it is still causing anxiety for business owners and finance teams alike. I hear myths such as “I must move to the cloud” and “I have to send HMRC my VAT workings” all too frequently.
Neither of these things is true.
The reality is, to comply with the new rules, most business will require hardly any change at all. The majority will need nothing more than a review and update of the process of preparing their VAT return.
Also, MTD only applies to companies what are compulsory VAT registered. If your taxable turnover is below £85,000 a year then MTD does not apply to you. You can comply voluntarily however once you opt in, you cannot opt out.
There are two parts to the new regime:
1. Submitting your VAT return using compatible software.
This will come into effect for most VAT registered businesses with taxable turnover above the VAT registration threshold on 1st April 2019 and 1st October 2019 for more complex VAT returns (such as group returns, partial exemptions and non-established business).
2. The implementation of “digital links”.
This will come into effect from 1st April 2020.
Submission using compatible software
Contrary to what some people will tell you, this doesn’t mean you have to move to the cloud.
While all cloud packages are compatible, both Sage and Quickbooks’ desktop applications are also on the HMRC approved software list – as long as you are using the latest version.
If your VAT return is relatively straight forward, (just inputs and outputs or even if you are partially exempt), the only real change will be negligible. Rather than logging into the Government Gateway to input your figures, you will submit the return to HMRC directly through your software.
Bridging the gap
For those who do not want to upgrade to the cloud or who are using bespoke software or software designed primarily for an overseas market, you will be able to submit your VAT return using bridging software.
This is a piece of software that will sit between your Excel workings and HMRC’s system to bridge the gap. We are offering bridging software, so if you are interested, please get in touch.
While all major off the shelf packages, both cloud and desktop-based will do the job, we are seeing exciting advancements in what today’s cloud accounting packages and associated apps can offer. MTD is as good an excuse as ever to think about making your financial record-keeping more efficient and your reporting more responsive and relevant to your business. If you would like to discuss what is available please get in touch with our outsourcing team.
From the 1st April 2020, you will need to maintain digital links in your record keeping.
The short version of this is that you will no longer be able to manually re-enter data or summaries from one working to another.
You will also not be able to copy and paste data from one place to another.
This need not be a major change in the way you prepare your return; it will just require some thought to the way you export your data from the systems that generate/hold it and how that data is linked together to produce the final return. HMRC have stated that emailing spreadsheets or transferring data in USB sticks (or similar), does not break the digital link and is acceptable.
It is also worth noting that the new rules do not prevent you from making calculations outside of your accounting records for adjustments. For instance, a calculation for the irrecoverable VAT for partial exemption, or the capital goods scheme. These adjustments should then just be entered into your software/spreadsheet before submission to HMRC.
I have also been asked a lot about how entries need to be made where part of the record keeping are outsourced to a third party. An example would be a property managing agent that issues rental demands, collects in cash and arranges for expenses of the property to be paid and provides you with a monthly or quarterly statement. In these cases you do not need enter the whole statement line by line into your records; you can just enter the totals of summary if you want to and this is within the rules.
Hopefully, this will reassure you that compliance with MTD for VAT need not turn your processes and procedures upside-down, but that some consideration and process changes are needed to ensure compliance.
Please contact us if you would like to speak to one of our specialists to discuss what software solution is right for your business or to go through your VAT return preparation procedures to ensure they are compliant with the new requirements.
About the author – Matthew Granger, UHY London Office
Matthew is a manager within the London office business advisory services department. Matthew has range of experience working with a diverse range of clients, ranging from small owner-managed start-ups, to listed multinational groups covering a variety of sectors including education, recruitment, financial services and property investment.
Matthew assists clients in developing their businesses and provides them with auditing services, outsourcing for single entity businesses and groups, business tax compliance as well as advising them on the implementation and use of cloud accounting systems. He is a Xero certified adviser.