Making Tax Digital
With Making Tax Digital just around the corner there is still some confusion over what exactly is required by HMRC in order to be compliant moving forward. Thankfully in the Spring Statement on 13 March 2019 the Chancellor confirmed that HMRC would take a ‘light touch approach’ to penalties in the first year of implementation ‘Where businesses are doing their best to comply, no filing or record-keeping penalties will be issued’.
However this does not change the fact that from 1 April 2019 all business will need to try and become compliant. The easiest way for this is to use software which is already compatible such as Sage 50 Cloud, Sage One, Xero and Quickbooks Online. There is the ability to use spreadsheets but these will need to be linked ti HMRC via bridging software and as such may not be suitable for anybody without a good knowledge of how spreadsheets work.
Your manager should be contacting you shortly to discuss your individual requirements.
Finally Philip Hammond also confirmed that there will be no further mandation for Making Tax Digital for any new taxes or businesses until at least April 2021 which is good news for the time being.
Making Tax Digital (MTD) is almost upon us for VAT registered businesses, we have only a few months in which to ensure that your business is compliant with the requirements of submitting your VAT return electronically for any period starting on or after 1 April 2019. For example if your VAT quarters are March, June, September and December then you will need to have digital records starting from 1 April 2019. If your returns are February, May, August and November then you will need to start from 1 June 2019.
All of the details from HMRC on how they see MTD working are on their website https://www.gov.uk/government/publications/making-tax-digital/overview-of-making-tax-digital. Essentially HMRC’s view is that keeping records digitally will aid in the reduction of errors that are associated with manual record keeping. It is worth a read but as you might expect it doesn’t really tell you what you as a business needs to do over the coming months.
How will it affect you?
We need to see whether MTD will change how you operate on a day-to-day basis. Usually this comes down to two simple questions 1) Are you recording your accounting and VAT information digitally and 2) Is that software compatible with MTD.
Sometimes these questions are straight forward to answer, if you are using software such as Xero, Sage One or Quickbooks Online then you can answer yes to both of these and usually you won’t need to do anything further. When we start looking at desktop versions of Sage 50, Sage Instant or Quickbooks the second question is more relevant. If you are on the most recent version then the answer will almost certainly be yes (although you may need an update) if it is older than 6 months then the answer will likely be no. To become compliant it is likely that you will need to upgrade to the latest version of that software, this will come with a cost. The alternative would be to change the software you are using.
There are then the businesses who record their records digitally on a spreadsheet. This meets the requirement first question but as it is will not be compliant with MTD. There is some difficulty here as HMRC only announced in July 2018 that spreadsheets may be used, however the information will need to be submitted to them digitally through an API provided by a third party. Until only recently software developers have started to issue beta versions of their API plug-ins and as such many are untested at this time. This adds a new tool bar to your spreadsheet package from which you can submit to HMRC, it is also likely that if you have an older version of Excel this will not work with the plug-in. Additionally it is likely that you will have to format your spreadsheet in a particular way so that the information can be read correctly. There is also likely to be a cost associated with this too.
The last group of people are those who still maintain manual records, they will certainly have to change their business practices in order to be compliant with these rules. These are the group of clients which we are most worried about and urge your to contact you account manager as soon as possible if you haven’t already discussed this.
What to do next?
There are always a number of factors to consider when asking this question, the best option for most businesses is to move to an online package such as Xero, Sage One or Quickbooks Online. Each package has its benefits and drawbacks and what you require for your business may suit one package better than others. The best thing to do is have a chat with your accountant and see what they recommend.
The next question is when should you move? Simply put, there are two preferred times to move. The first is at the start of a new accounting year, the second is the start of a new VAT quarter. Ideally the two happen at the same time but that might not be possible given that we are only a few months away.
The ultimate goal of HMRC here is to reduce the chance of error in all taxes, so whilst we are presently looking at MTD being only for VAT there is a longer term aim of submitting personal and businesses taxes through this method in future years. This will be phased in over time and whilst there are already indications of these timescales given in the next 3 – 5 years it will be interesting to see how the VAT approach will be adopted first before we can rely on these.
There are lots of benefits to using digital software and in particular the online versions. Not only does it aim to be more accurate but it will also save you time in your record keeping. Bank Feeds can mean that transactions that go through your bank can be automatically brought through into the software reducing entry time.
Having up to date information should mean that you are more prepared and allows you to keep track of your finances rather than just relying on the preparation of the year end accounts to see how you have performed. This should then help you to make business decisions and make you more profitable.
Whatever you decide is the right option for you we are here to help.
Meet the Team
Mark Smith ACCA
Exeter Branch Manager
Each department focuses on providing specialised and personalised service and our team is here to help you.