Following the announcement that the government was delaying the rollout of Making Tax Digital (MTD) until 2020, the Finance Bill 2017 published on 8 September 2017 included legislation which included the introduction of Making Tax Digital for VAT purposes.
What do we know
According to HMRC, Making Tax Digital for VAT will come into effect from April 2019 and from that date, businesses with a turnover above the VAT threshold (currently £85,000) will have to:
- keep their records digitally for VAT purposes only
- provide their VAT return to HMRC through MTD functional compatible software
Businesses voluntarily registered for VAT but with taxable turnover under the VAT registration threshold will not be subject to MTD for VAT.
The updated timeline
- April 2018: The Government intend to have all requirements for MTD for VAT fully legislated which will allow 12-months for software providers and taxpayers to prepare for the changes
- April 2019: Digital records will only be required for VAT purposes
- April 2020 onwards: Business will not have to keep digital records or report quarterly for other taxes such as income tax and corporation tax until April 2020 at the earliest
- MTD will be available on a voluntary basis for businesses below the VAT threshold, for both VAT and income tax.
How will the new reporting work?
Businesses will have to use “functional compatible software” to submit digital information to HMRC. This means some form of computerised bookkeeping software or cloud accounting package must be used to submit information to HMRC. Spreadsheets are allowed but only in conjunction with some kind of digital platform to submit information.
Your VAT return must be populated with information directly obtained from the underlying digital records. There shouldn’t be any other changes to the procedure; the return will still look the same as it has previously done, but behind the figures will be supplementary information gained from the software.
How can you prepare?
If you are VAT registered and don’t currently use a digital accounting package such as QuickBooks, Sage or Xero, to record your VAT information then we would suggest that you need to start planning for Making Tax Digital now.
Here at Sheards we still believe that there are huge benefits to be gained from implementing online accounting software.
Moving to a cloud based system provides businesses with a clear understanding of their business finances allowing them to take control and make well informed decisions based on up to date financial information.
If you would like further information, please don’t hesitate to get in touch: advice@sheards.co.uk.