The 1 April marked one year until Making Tax Digital (“MTD”), the government’s flagship project for digitalising the submission of tax returns, is set to become mandatory for many VAT-registered businesses. But with the ‘official’ Brexit date set just two days before, HMRC appear concerned that the launch of the disruptive MTD initiative could be too much to handle.
In a recent letter to parliament, the HMRC Chief Executive, Jon Thompson, explained that he is in discussions with the Treasury as to which projects on HMRC’s roadmap should stop, not even start, or should be ‘stretched’ in order to give Brexit the focus it will require. Although no specific projects have been mentioned yet, many believe that the demands of MTD are too much at such a critical period and that further delays could be possible. Already in its short history since conception, a change of Chancellor, technology failures and general hesitancy with the programme have all caused delays to the original start dates.
Whether the start of MTD is stretched or not, it is coming and it demands proactive action. No business can afford to sit back unprepared and uninformed because, unlike changes to tax rates and legislation, MTD will necessitate tangible system changes that could be seismic for smaller businesses.
WHAT IS MAKING TAX DIGITAL?
The MTD programme is a key part of the government’s plans to make it easier for individuals and businesses to get their taxes right first time and keep on top of their tax affairs. The government’s aim is for real-time submissions to be made on a regular basis throughout the year, rather than relying on year-end submissions alone, with the overall goal being for HMRC to “become one of the most digitally-advanced tax administrations in the world”.
Put simply, MTD will require businesses and taxpayers to maintain digital records of transactions and make periodic submissions to HMRC throughout each tax year at the click of a button. Eventually, the days of single annual submissions will be a thing of the past.
WHEN WILL MTD START?
MTD is being rolled out in phases but so far it hasn’t been plain sailing. The current plan is as follows:
VAT
1 April 2019 for VAT registered businesses with turnover above VAT threshold
No sooner than 1 April 2020 for VAT registered businesses with turnover below VAT threshold
CORPORATION TAX
No sooner than 1 April 2020
INCOME TAX
No sooner than 1 April 2020 including property landlords
The VAT registration threshold is currently at £85,000 (net of VAT) on a rolling 12-month basis, so the first task for VAT-registered businesses is to assess whether they exceed this threshold, in which case they will be mandated to use MTD for VAT purposes from 1 April 2019, or if they fall below this threshold and have registered for VAT voluntarily, in which case they may use MTD from 1 April 2019 but will not be mandated to.
Given that VAT returns are already submitted on a quarterly (or monthly) basis under current legislation, under MTD no business will need to provide information to HMRC more regularly than they do now. VAT has been administered online since 2010 and over 98% of VAT registered businesses already file electronic returns.
WHAT ARE THE SPECIFIC REQUIREMENTS OF MTD FOR VAT?
The major change that MTD will bring to affected businesses is the amount of information that must be maintained and reported digitally, which will be much more than ever required. Businesses will be required to maintain digital records of all information underpinning the sum totals included on each VAT return, on an invoice-by-invoice basis. At present, HMRC considers this data to be ‘supplementary’ to the main VAT return and is giving businesses the option to submit it as part of the VAT return submission, but it will not be mandatory from the outset.
As a result of these additional digital requirements, from April 2019 businesses will no longer be able to simply log in to HMRC’s existing online VAT system and key in the contents of their VAT return. Instead, they will be required to maintain suitable digital records on MTD-compatible software (e.g. online bookkeeping software such as Xero or QuickBooks) and submit their MTD VAT returns through that. HMRC has confirmed that it will not be releasing any free-of-charge software to assist with this.
The government has confirmed that it will not widen the scope of MTD beyond VAT before the system has been shown to work well, and not before April 2020 at the earliest.
HOW CAN WE HELP?
The April 2019 launch date may seem a long way off but we recommend considering the potential implications for your business well in advance of this. These are likely to include:
- Is your current software MTD VAT compatible? If you’re not sure, ask us or contact your provider.
- If you don’t currently use software, have you considered the software options available?
- The timing of changing your system in correlation with your financial year end.
- Software training for staff.
As well as having experience with a number of accounting systems, we are accredited partners of Xero and QuickBooks online, which are both cloud-based accounting software solutions with MTD capabilities. Most cloud-based solutions now feature live data feeds direct from company bank accounts, remote access to data from any device, automated cloud backups and real-time interaction with advisors.
We have worked with a number of our clients to ensure a smooth transition to a new accounting solution, including assessing the suitability of each option available; assisting with transferring data from existing systems; provision of training; setting up new template sales invoices and bespoke reports; and setting up system users with appropriate access rights.
Even if you haven’t heard much about Making Tax Digital to-date, the time to prepare is now and we’re here to help make sure you’re not caught out. So, if you have any queries or would like to discuss your business’ Making Tax Digital requirements, please feel free to contact the team at Walpole Dunn.