Making Tax Digital: How can my business prepare?
Added by Love Business East Midlands | 21 February 2019
UPDATED: 21 February 2019
Temperatures are continuing to drop and this tell-tale sign reminds us that the end of the tax year is rapidly approaching.
But in a country fixated on the chaos surrounding Brexit, it is important not to forget about Making Tax Digital (MTD) – a fundamental change HM Revenue and Customs (HMRC) is making to the VAT return system this April.
With the implementation date looming, you may be concerned about the effect MTD could have on your business. Becki Roberts, assistant manager at leading Nottingham-based accountancy firm UHY Hacker Young, shares everything you need to know about making the transition.
What is Making Tax Digital?
“To improve efficiency, HMRC wants to go paperless so it has introduced MTD, which involves keeping digital records and using software to complete tax returns. Announced in the 2015 Spring Budget, MTD aims to reduce errors and create £1bn of extra revenue for the Treasury by 2020.”
When will it start?
“HMRC is phasing in MTD gradually. MTD for VAT comes into effect from 1 April 2019, meaning all VAT-registered businesses with a taxable turnover above the VAT threshold of £85,000 must submit their VAT returns online.
“A ‘soft landing’ is being offered for some VAT registered organisations, with HMRC extending the deadline by six months for the following organisations:
- Trusts;
- ‘Not for profit’ organisations that are not set up as a company;
- VAT divisions;
- VAT groups;
- Public sector entities required to provide additional information on their VAT return (government departments, NHS trusts);
- Local authorities;
- Public corporations;
- Traders based overseas;
- Those required to make payments on account; and
- Annual accounting scheme users.
“Eventually, HMRC will introduce MTD for income and corporation tax and it’s expected MTD will be extended to all VAT-registered businesses. The earliest these changes will be phased in from is April 2020.
“It is also worth noting that businesses that are not required to comply with MTD can do so voluntarily if they wish.”
What is my business required to do?
“Currently, many businesses use spreadsheets and/or manual calculations to finalise their VAT returns. However, under MTD, the expectation is that manual adjustments will need to be digitised. Those businesses who are required to comply with MTD for VAT will have two obligations. They must:
- Keep digital records of all transaction details, using software that is capable of linking directly to HMRC’s systems; and
- Report the VAT return data via that software directly to HMRC within one calendar month and seven days from the end of your businesses VAT quarter.
“In order to prepare, businesses should review how information for their VAT returns is currently collected and consider whether this current system of record keeping will meet the requirements for MTD.”
What are the penalties if I do not comply?
“Penalties for late submission and payment are based on a flat percentage of the tax due. These penalties have no concept of proportionality and can prove to be extremely costly. While HMRC may be lenient immediately after the system is introduced, this will not be infinite so every VAT registration and return needs to be working to the expected standard to avoid penalties.”
If you would like to discuss how these changes might impact your business, please visit https://uhy-uk.com/nottingham or call 0115 959 0900.
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