Aiming to modernise and improve the UK tax system, the Government’s Making Tax Digital for VAT (MTD) initiative comes into effect from 1 April 2019. Other areas of MTD, such as income tax and corporation tax, have been put on hold until April 2020 at the earliest. Although the initiative is moving slower than planned, MTD will continue to move forward, despite Brexit.
VAT registered businesses with an annual turnover above the VAT threshold of £85,000 will be obligated to use MTD for VAT. This will involve setting up a digital tax account and filing quarterly returns online, using an accounting system or app that is integrated with the new digital gateway that HMRC is currently building. Many businesses are yet to confront MTD, but with only 110 working days to go, there is little time available for preparation and testing. If your VAT-registered business is below the £85,000 annual turnover threshold, you will not need to be compliant with MTD, although you can sign up voluntarily. Regardless, we would advise you to begin preparations now to ensure that you have plenty of time to get to grips with the new system.
As shown by our timeline below, the first VAT return affected by the new rules will be due by 7 June 2019 (covering the month of April). The first quarterly return under the new MTD regime will be due by 7 August 2019, covering April, May and June.
Benefits of MTD
In September, the ICAEW claimed that 49% of affected businesses were unaware of the change. Currently, only approximately 11% of VAT returns are filed digitally, suggesting that many businesses will need to overhaul their tax practices in time for April 2019. Although it seems like a lot of work to prepare for MTD, there are benefits to upgrading to a digital system.
Accurate and timely data
The production of a VAT return requires accurate and timely data. Your current system may not produce reliable numbers from the correct source. By automating the process, you remove the chances of human error. MTD may reduce the risk of both HMRC investigations and financial penalties. For those transitioning from manual systems, the accuracy of your financial data will be improved and be more consistent.
More Efficient Businesses
Technology can efficiently deal with mundane processes. Complicated processes can be made simple allowing you to focus on important and time-critical business decisions. With cloud technology and accounting software, businesses can detect mistakes right as they happen. By working in the cloud on up to date financial information, your accountant can analyse your financial data in real-time and give you meaningful advice to make informed business decisions.
The key to working digitally is that you are transparent in how you’re working. All your data is available to you at any moment in real time with access to all of your key financial and business data. Digitising your accounting records, and other business functions, gives you far better control over important information about your business. You can access your data in real time and have a clear picture of how your business is performing.
How can your business prepare?
We recommend allowing plenty of time for your business to prepare. As accountants and experts in tax, we can help you get ready for MTD. To be prepared, you will have to ensure your software is compatible with MTD. If you’re used to submitting VAT returns on spreadsheets, you will need ‘bridging software’ to bridge the gap between Excel and HMRC’s system.
Our belief is that those willing to embrace technology will benefit from the extraordinary developments that are happening around us. Many Accounting firms are adopting and implementing cloud applications and “a new way of working” but at Ecovis, we go beyond the basic implementation of software and understand this fast-developing industry. We make sure we understand not just as many systems as possible but also their various strengths and weaknesses to streamline accounting and operational processes. This saves our clients time, money and provides them with the business information they need in real-time.
How we can help
There are a number of solutions available to businesses. The most reliable alternative is cloud based (online) accounting and bookkeeping software. We launched Ecovis Online in 2011, and today, after continuous development and improvement, the platform acts as a marketplace for any piece of software you wish to use. We are experts in SAAS and able to assist you in choosing and implementing the right software solutions for your business. If you would like a free Risk and Opportunities meeting to discuss the impact of MTD and a demonstration of our solution, please contact your Ecovis Partner or get in touch with us.
As more details become available from HMRC, we will keep you updated via our website and mailings and provide clear guidance that will enable you to comply with the new system.