It is now only three months until Making Tax Digital (MTD), the new regime for record keeping and filing of VAT returns, comes into force, with the vast majority of businesses due to ‘go digital’ from 1 April 2019.
While many businesses are fully prepared for the changes – and in some cases, have already switched to digital record keeping and returns – there are still plenty of myths surrounding what MTD will mean, and plenty of businesses which have yet to get up to speed.
So in an effort to break down some of the main misconceptions about what MTD will mean for businesses, below are five of the most common myths surrounding the switch to the new regime – as well as a reality check for each of them.
We have also created a handy MTD guide you can download for free to give you the information you need in preparation for April.
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If you’re looking for an MTA solution for your business, you can download the latest version of the free Price Bailey MiPB app from Google Play or the App Store. For more information on MiPB, visit mipb.pricebailey.co.uk for more information.
Making Tax Digital will just mean record keeping and paperwork for me and my business?
Actually, if HMRC achieves its stated aims with the move to MTD, then the end result should be just the opposite. The goal is to simplify the UK’s tax system for everyone involved; HMRC hopes it will make it easier for businesses to get their tax right the first time, while also reducing the costs, risk of errors and worry that businesses face when HMRC intervenes to put things right.
While it will be mandatory for businesses that fall within MTD to keep digital records (with returns submitted electronically using MTD-compatible software such as our own cloud-based app MiPB), the information needed to complete those records will be no more than is required now. So along with your business information (ie business name, address and VAT registration number, along with any VAT accounting schemes you use) and the amount of input tax you will be claiming, you will be required to keep records of the date, value and rate of VAT charged or claimed on all supplies made and received, along with the tax you are required to pay or entitled to claim, allowances on acquisition from other EU states, and any other adjustments.
So will I now have to submit four tax returns a year?
The short answer is no (despite what you may have read in the press). With your business accounts now maintained electronically and much of your business admin automated, your software will calculate your quarterly VAT returns for you from your digital records. It will then ask you to check that the return is correct and confirm that you want to submit it to HMRC. Once you have submitted your return you will receive confirmation through your software that it has been received.
You will have the opportunity to supply VAT updates as well as supplementary data ahead of your VAT return (which, if your business is selected for a tax compliance check, could be enough to reassure HMRC that your return is correct) – but both of these options are voluntary.
Will a software-based system be too complicated or technical for my business needs?
Not if the current figures are anything to go by. According to the HMRC, most agents (over 90%) – such as accountants and tax advisers – working on behalf of business clients say they can and want to use digital services, and 95% already file online. Most clients already provide their tax information digitally too, with 99% of VAT returns, 98% of Corporation Tax and 86% of self-assessment done online.
HMRC has also promised advice and support throughout the changeover; they have hosted a number of webinars exploring various aspects of the switch, and have already produced a range of videos explaining how MTD could affect your business, and what you need to do to make sure you’re ready for the deadline.
Will HMRC be providing free software for my business to use?
Unfortunately not. But it has been working with providers to make sure that a wide range of compatible software is available, and that most of the commonly used packages can be easily upgraded to meet the needs of MTD. The compatible software for VAT includes bridging software, a digital tool that connects accounting software to HMRC systems, allowing you to digitally report VAT information to HMRC, and allowing HMRC to send information to you digitally.
However, HMRC does expect that most businesses and their agents will choose to use commercially available tax software – so if you haven’t already spoken to your accountant or sourced a suitable package, it’s essential to do so as soon as possible.
But if all else fails, can I still opt to do paper returns?
Again, the answer is no – at least, definitely not in the long term. For some businesses, the move to digital accounting has been deferred for six months to October 2019. These organisations include: trusts; ‘not for profit’ organisations not set up as a company; VAT divisions and VAT groups; local authorities; public corporations; traders based overseas; those required to make payments on account; and those using the annual accounting scheme users. As yet it’s unclear whether any of these organisations will be allowed to continue filing paper returns until October 2019, but what is clear is that from that date, they too will need to meet the requirements of MTD.
Where can I find more information and advice?
Making Tax Digital could deliver significant benefits concerning accuracy and efficiency for a vast range of businesses, even if the switch to digital accounting and automated admin appears to be a major step.
We at Price Bailey have produced a guide to give you more information about what MTD will mean for your business, how you can prepare to make the move, and the timeline for the introduction of the new regime.
This post was written by Chris Godsave, Partner at Price Bailey. If you need further information on any of the above, please feel free to get in touch with Chris using the contact 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.