10 Aug 2018 5:19 PM

Making Tax Digital (‘MTD’) is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs. HMRC’s ambition is to become one of the most digitally advanced tax administrations in the world, modernising the tax system to make it more effective, more efficient and easier for customers to comply

The current published timeline for MTD is:

From 1 April 2019 – VAT reporting by all VAT registered businesses over the VAT threshold (currently £85,000)

From April 2020 at the earliest – all other taxes (income tax and corporation tax)

As the first to be affected, it’s important for VAT registered businesses over the VAT threshold to understand how they will be impacted; how to plan for this; and even use it as an opportunity to review existing, or outdated systems for modern and potentially time saving and efficient ones.

What does this mean for VAT registered businesses over the VAT threshold?

The key change is that businesses will be required to maintain digital records and will need to send their VAT information to HMRC using third party commercial software.  This means the current online portal will only be available to businesses that complete a VAT return but are below the VAT threshold. Businesses will include unincorporated businesses, companies, LLPs and charities. To maintain digital records, businesses will have to use cloud accounting software.

What software can I use?

HMRC have recently published a list of approved MTD software providers which you can read about in our blog  

The key requirements of the software is that it must be able to:

Keep records in a digital form,

Preserve digital records in a digital form

Create a VAT return from the digital records

Provide HMRC with VAT data on a voluntary basis

Receive information from HMRC via the API (application programme interface) platform. This will allow HMRC to send reminders to the business/agent.

Alliotts have already transitioned, or are in the process of transitioning, all outsourced bookkeeping assignments to established software such as Xero and Intuit Quickbooks both of which have already received the seal of approval from HMRC.

Can I continue using spreadsheets?

HMRC have indicted the use of spreadsheets will be permitted, although spreadsheets will need to be combined with third-party commercial software, using APIs, to ensure a seamless flow of data from the business to HMRC (and vice versa). 

Can I get an exemption from MTD for my business even though the business is VAT registered business over the VAT threshold?

You will not have to follow the Making Tax Digital rules where HMRC is satisfied that:

  • your business is run entirely by practicing members of a religious society whose beliefs are incompatible with the requirements of the regulations (for example, those religious beliefs prevent them from using computers)
  • it is not reasonably practicable for you to use digital tools to keep your business records or submit your returns, for reasons of age, disability, remoteness of location or for any other reason
  • you are subject to an insolvency procedure

Exemption is not automatic – an application needs to be made to HMRC.

What should I be doing? 

You should certainly be speaking to your software provider to ensure that they will be ready for the change. If your business has an IT department, it is a good idea for them to review internal reporting systems, processes and controls and how they may be able to help the business be compliant. Consider likely costs and potential short term impact on your business of any changes being implemented. Speak to you r accountant to see how they may be able to help.  Consider what information you need to submit to HMRC and if you need an API, how this will work – you may need additional software or you may choose to outsource the submission of the VAT returns to a third party.

How can Alliotts help?

Businesses should take this as an opportunity to review their existing accounting systems and whether there is better, cheaper, more efficient software in the marketplace that can do what is required. An accounting software installed 20 years ago on the advice of an accountant may have been the best solution then, but has something been developed since that could do more for your business, more efficiently?

We can help you to implement new systems if you do not already using a cloud accounting software. We can also help you update your software if it is out of date. For more complex businesses, we can undertake a system review and work with you to either ensure your existing systems will be MTD compliant and if not, what changes need to be made to make you MTD compliant.

If you have any queries or need help on becoming MTD compliant, please contact me to discuss how we can help you.