Making Tax Digital (MTD) was introduced to the UK on 1 April 2019 as part of the Government’s plan to ease individuals’ and businesses’ tax monitoring and ensure they are paying the correct tax. Currently, the reform applies to VAT-registered businesses, but going forward the intention is that it will apply to every single business entity that is required to complete and file tax returns digitally.
A reminder on how it works
In a nutshell, MTD makes it mandatory for businesses to keep digital accounting records and complete their VAT submissions to HMRC via an Application Programme Interface (API), utilising MTD compliant software. You can find more guidance on the current status of MTD in our 2019 Guide here.
For the last 12 months, MTD only applied to businesses who were compulsory VAT registered and to ease the transition period HMRC granted the business community a soft-landing period of 12 months, with no record-keeping or late/incorrect submission penalties being applied.
MTD – Phase 2
Whilst the exact timing of when MTD Phase 2 will now be introduced is still unknown, prior to the COVID-19 we expected the following changes to be introduced:
- Your accounting records will need to be maintained on a suitable software that allows you to make live submissions with HMRC, bridging software which has previously been acceptable during the soft-landing period may not be accepted after the soft landing period elapses.
- Digital links will be required between the computer systems you use as part of your business processes. All systems will need to be integrated such that data can be transferred from one system to another automatically with no human interference.
- You will need to record the date and value of sales and purchases, and the rate of VAT charged. A key difference here is that whilst many businesses have previously entered daily or monthly totals into the accounting system or recorded transactions from statements, most businesses will now need to supply the information for each individual supply, however existing exemptions for retail businesses will continue.
We expect that these changes may be amended or further delayed to a time when businesses will be in a position to respond appropriately.
During the soft-landing phase of the last 12 months, no penalties have been enforced while HMRC recognised that it will take time for businesses to get used to the new operating system. This soft landing period is expected to continue whilst the current circumstances continue.
More than just an HMRC requirement
Although MTD has been delayed, many of the areas it focuses on have greater benefits than just achieving ‘compliance with MTD requirements’. Businesses can also benefit from the increased efficiency that the automation of integrated systems and digital links provide. With movements in accounting technologies and significant advancements in cloud-based accounting systems, it is always worth thinking about how these could help make your business more efficient. If you’re not currently using a cloud accounting system, don’t think you are using your current system to its full capability, or if you quite simply don’t know where to start, we would always be happy to chat through the options available and make some recommendations.
We could also consider performing a review of your current systems in order to understand the best solution for the long-term success of your business.
Price Bailey is able to offer a full system review and provide feedback on your current systems and procedures. This can be a useful first step before advising on and implementing the most suitable solutions to fit a business’ requirements.
The objectives of a review would typically be to highlight:
- Areas of inefficiency, where the process could be improved or parts automated to reduce the time required to perform;
- Areas of control risk, where we identify any risk areas within the system – either through misappropriation or misstatement; and,
- Parts of the process which can easily be outsourced.
We find clients find these particularly useful where:
- The business has a long-standing finance team and believes they have out of date processes/procedures and maybe doing things inefficiently;
- The current finance controller is leaving and they are considering whether to recruit and replace them like for like or to outsource the role; and/or,
- They are experiencing issues with the current finance team and not receiving accurate financial information or management reporting.
This post was written by Chris Godsave, a Partner at Price Bailey and Lee Sharman Manager in the Business team. If you are concerned about MTD and have any questions on what this means for you and your business, please contact Chris using the form below.
We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.