Businesses need to be ready for the Making Tax Digital initiative and many need to handle their records digitally from the 1st April. Over 2000 businesses are signing up for MTD each day, but at the beginning of March, almost 1.2 million businesses only had one month to go to get signed up and using the software.
Most UK VAT registered businesses with more than £85k p.a. turnover must subscribe to the new “Making Tax Digital” (“MTD”) regime for VAT return submissions falling due from 1 April 2019. This means they must have a computer system allowing them to:
· Keep records in a digital form;
· Create a VAT return from the digital records, and
· Submit this information digitally (no more manually typed submissions will be possible
The new service gives businesses a more integrated approach to tax. For businesses over the VAT threshold, they will need to be to digitally submit their records and submit VAT returns using MTD-compatible software. The scheme is designed to give businesses more control over their finances, so that they can spend more time on their growth and job creation. It also reduces the time they spend on admin and makes it easier to get tax right. It’s part of the government’s #Smartergov campaign, which was launched to drive innovation through the public sector.
Companies Delaying Signing Up
There have been some concerns that companies were putting it off due to the high cost of software, a belief that the deadline would be moved again or a difficulty in understanding the new system. Theresa Middleton, Director of the Making Tax Digital for Business Programme, commented that there are many options for companies.
“There are over 160 software products for businesses to choose from with a range of prices, including some that are free, offering different levels of functionality to suit every business. It’s time to get on board and join the thousands of businesses already experiencing the benefits of MTD.”
Most accountants will have been aware of Making Tax digital for a while and can advise businesses of how and when they need to make changes. Any software that companies already use will need to be MTD-compatible and authorised when they sign up. If you don’t currently have software or an accountant to advise, businesses are able to access information and guides online.
Snagging Period and Deferment
HMRC has also made companies aware that they are aware of the snagging period usually needed for implementing new systems. For this reason, during the first year, it will not be too harsh when it comes to digital record keeping and forcing penalties if companies are doing their best to comply with the law. This doesn’t mean, however, that there will be no penalties at all.
There is also deferment until 1 October for some VAT taxpayers, such as trusts, ‘not for profit’ organisations that are not set up as a company, VAT divisions, VAT groups, local authorities, public corporations, traders based overseas, those required to make payments on account and annual accounting scheme users.
Any business that does not have an accounting system configured to make the automated submissions to HMRC, or that manually manipulates data outside its system (for instance in Excel) before submission will need to obtain “bridging software” in order to make submissions in form required by HMRC.
This story was originally posted on VAT Life, Quipsound’s quarterly newsletter in association with Essentia Global Services. Click here to see the story and more on VAT Life.