Chris Booth is a business growth advisor, professional speaker and chartered accountant with over 30 years’ experience of advising businesses of all sizes as a director of McKellens Chartered Accountants, based in Heaton Mersey, Stockport.
Making tax digital – or MTD – will affect lots and lots of small (and large) businesses from April 2019. HM Revenue & Customs announced some time ago that all VAT registered business with an annual turnover over the VAT registration threshold of £85,000, would have to submit their VAT return figures under the new MTD regime for all VAT return periods beginning on or after 1st April 2019.
What this means is that businesses and organisations will have to keep digital records and submit VAT returns using compatible software which can access HMRC’s systems. And so, maintaining purely paper records will not be sufficient to meet the requirements of the legislation.
And if you’re thinking you’re OK and not affected by the above, in April 2020 HMRC will require all other tax reporting to be done digitally as well, so that’s all businesses with turnover between £10k and the current £85,000 VAT threshold. If that’s you, your planning for then, should start now!
So why have HMRC done this? And aren’t businesses already submitting VAT returns digitally?
To answer the second question first, we may think so, but not in the way HMRC want. Currently most businesses take the VAT return information from their accounting system (s) and then login in to the HMRC website and key-in the details. What HMRC expect, based on similar experiences in Australia, is that up to 35% of the information going in to their website is not correct. Either the business makes a mistake and inputs the wrong numbers or they are deliberately changed.
HMRC want to take away the manual intervention so that the accounting system automatically filters through the correct data into the VAT system. In this way HMRC will know they have got the correct VAT return information. As a consequence of this, HMRC expect to collect more VAT as they anticipate the current errors made will be in the taxpayers favour.
So how will this affect your business?
Step 1: You need to make sure your business complies with the new regulations. Are you under the threshold?
Step 2: You also need to have an accounting software which is compliant with MTD.
A number of major software companies are working on this and the market leading cloud based or on-line systems are already MTD compliant allowing you to submit your VAT returns direct from the system without the need to separately login to the HMRC website. BUT BEWARE… One software provider has said they will not be changing their systems to be MTD compliant. Other desktop accounting systems are also saying that you will either have to upgrade to their latest version or move to their online offerings.
So what must you do? Check what system you use and find out if it is MTD compliant – or will be before 1st April 2019. If you are still using paper based systems or spreadsheets now is the time to move things over onto an online platform which will give you real-time information. Those below the threshold aren’t safe from change either! The VAT threshold has been frozen for the next two years (at least) which means more businesses will be caught within the £85,000 limit.
So even in the future, if your turnover drops below the limit, you’ll still be expected to comply with MTD and you will continue to stay in the £85,000 threshold. There are other possibilities and ramifications of MTD but we can look at those separately.
One thing for sure is doing nothing on MTD is not an option!
NB: If you’d like to learn more about MTD, FSB has organised an event on Thursday, Feb 28 at Manchester Central Library. To find further details of the event and to book your place please visit Eventbrite.