14 Mar Are you VAT Registered? A Making Tax Digital Update
Are you VAT registered?
The original Making Tax Digital (MTD) proposals phased in the implementation of digital record keeping and quarterly updating by businesses, the self-employed and landlords for Income Tax Self-Assessment (ITSA), Value Added Tax (VAT) and Corporation Tax (CT) between tax years 2018/19 and 2020/21.
In July 2017 the government announced by Written Ministerial Statement, that businesses would not be mandated to use the Making Tax Digital system until April 2019.
The government recognises that the majority of businesses want to get their tax right, but the latest tax gap figures, over £9 billion lost annually in tax, published by HM Revenue and Customs (HMRC) show that too many otherwise compliant businesses find this hard.
So who will be affected in April 2019?
The first phase of the new MTD rollout applies to all VAT registered businesses where their turnovers are in excess of the VAT threshold (currently £85,000).
These business will be required to maintain digital records and will need to send their VAT information to HMRC using third party commercial software.
Those business who are not over the £85,000 threshold but are voluntary VAT registered can join MTD filing, but there is no mandatory requirement to keep digital accounting records and file VAT Returns using MTD compliant software until 2020 or later. The existing VAT return filing service on the HMRC website will be available until at least Spring 2020.
What does Making Tax Digital mean for businesses?
From April 2019, VAT registered businesses described above, or those under the threshold who want to opt in to the new system will have to:
- keep their records digitally
- submit VAT returns digitally with effect from the first VAT return period beginning on or after 1 April 2019
- provide their VAT return information to HMRC Making Tax Digital VAT account via third party software.
“Digital Records” does not mean that business cannot keep paper records, it just requires the transactions to be stored digitally on compliant software.
What else is coming?
Although VAT reporting from April 2019 is the first phase of the MTD rollout, unincorporated and non VAT registered business, landlords will also be affected from April 2020 at the earliest, when HMRC plan to extend the digital filing requirement to Income Tax and Corporation Tax.
Although the proposal for these taxes are not yet finalised, there are a few details currently known and software pilots are currently taking place with some providers. We have found a really useful article here from the ICAEW which explains where we currently are with property income, Income tax, and Corporation tax – Read the article here
So what does all this mean for you and your business?
Keeping records digitally will mean more timely and accurate record-keeping, and help to prevent errors associated with manual processes.
Another phrase that keeps coming back to us is ‘submission without manual intervention’!
So basically – the new MTD portal for filing your VAT, which you have to use from April 2019, will only talk to software, and unlike the current system for VAT, you cannot log in and manually enter figures.
Another point for consideration is that the new HMRC portal will only communicate with the most recent versions of some accounting and bookkeeping software. So if your software is more than a year old – chances are you will have to purchase a new licence and upgrade your software.
If you do not use software and rely on spreadsheets to maintain your records, these will be permitted. You will however need to find third part bridging software that will connect with the new HMRC system you will need to look in to which software suits you and your business needs.
Cloud Based Accounting
We believe the best option for most business to comply with the new system will be Cloud Based Accounting Software.
You don’t have to worry about back-ups or software upgrades. It’s all managed for you in your monthly subscription. You can also share access with your accountant, meaning they can view the information they need about your business more frequently than before.
Some of the Key benefits of digital bookkeeping and software include:
- always knowing where you stand when it comes to banking, sales, purchasing & tax
- having access to tax information online in a single place and while you are away from the office
- being able to work online collaboratively with your accountant
- being able to plan and budget more effectively
We Can Help you to Comply
If you are VAT registered and over the VAT threshold but still using paper, spreadsheets or outdated software now is the time to review. You have a year, and that’s generally only 4 VAT returns, to get up and running with the new software and MTD filing system.
We are here to help, whether it’s advising on which software is best for you, training or a fully outsourced MTD compliance bookkeeping service.
We offer Cloud Accounting software packages from Xero and Quickbooks with discounted prices starting from £9 per month, and can help you with the transition from manual to digital record keeping with our Cloud Set Up service, and Outsourced Bookkeeping & VAT service.
Contact us now by calling 01379 646943, or emailing firstname.lastname@example.org