Making Tax Digital - What it does it really mean for businesses?
Making Tax Digital comes into force in April 2019
As most of you are aware Making Tax Digital comes into force in April 2019. The majority of businesses with UK taxable supplies in excess of £85k per annum will be caught by MTD.
‘UK taxable supplies’ means all income that has a UK place of supply and is subject to UK VAT at the zero, reduced or standard rate. It also includes ‘deemed’ supplies, for example where a UK business receives services from overseas that would be liable to VAT if bought from a UK supplier (commonly referred to as reverse charge services).
This means that if you operate a VAT-registered business with a taxable turnover above the VAT registration threshold (currently £85,000) you are required to keep digital VAT business records and send VAT returns, starting on or after 1 April 2019, using MTD compatible software.
Some businesses with more complex requirements, such as trusts or VAT groups, have until 1 October 2019 before they are due to join MTD. All businesses that fall into this category should have been informed by HMRC.
HMRC recognises that businesses will require time to become familiar with the new requirements of MTD. Therefore, during the first year, HMRC has confirmed that they will take a light touch approach to digital record keeping and filing penalties, where businesses are doing their best to comply with the law.
This soft landing 12-month period will apply to those businesses who are trading over the current VAT registration threshold and fall within MTD from either 1 April 2019 or 1 October 2019. They will respectively have until 31 March 2020 or 30 September 2020 to become fully compliant.
The Purpose of MTD
HMRC have said that it is a major step towards "bringing VAT into the 21st Century" and will make it easier for businesses to get their tax right first time.
HMRC believe it could save small businesses money in the long term by making the process of VAT returns more efficient. However, businesses will be required to upgrade their existing software or buy new compatible software creating additional costs.
Issues around MTD
Professionals are citing a number of issues surrounding MTD and they include the following:
- Internet Access and Speed
In order to ensure that the majority of small businesses are aware that MTD is on its way and HMRC has stepped up its communication to small businesses, this includes numerous TV adverts. So, unless you have been living on the moon for the past year, you should now be aware of MTD.
Many small business owners may not be computer literate, and MTD will be a real burden and are unlikely to be ready for it. This is a real concern for a number of small businesses, and the solution can be to pay a bookkeeper or accountant to ensure you comply, which leads on to the next issue.
Costs are likely to increase for businesses as they are required to make their systems MTD-compatible. Not only by the purchase of additional software but also the additional accountancy services that may be required. This will add further costs to the running of a business.
Costs will differ from business to business and will be influenced by the size and complexity of the business and their degree of digital capability, as well as the type of functionality they want their software to include.
However, businesses can choose to use spreadsheets to both maintain digital records and perform tax calculations, provided the spreadsheets combine with some form of ‘bridging’ software that will allow their VAT return data to be sent to HMRC from the spreadsheet. There is numerous ‘bridging’ software available on the market for free.
Furthermore, according to HMRC, there are 11 products MTD-compatible products solutions available for free, with varying conditions of use.
One saving grace is that most businesses will be able to claim any costs for hardware and software against their tax and VAT liability.
Internet access and speed
Broadband speeds vary across the country and some businesses that cannot rely on a decent internet connection, may find the idea of relying on it to do something as important as their tax rather daunting.
Introducing MTD at the same time as we are supposed to leave the EU, in the words of one peer investigating MTD, “it seems to be a recipe for a bit of a car crash". In the already turbulent time of Brexit, where businesses will have new VAT rules to understand and implement, they must also attempt to implement MTD. An extra concern and potentially a drain on time and money, at an already difficult time for small businesses.
Updated: March 25, 2019
Guest Author : Deeks Vat Consultancy | For more information on MTD and VAT liabilites visit Deeks Vat Consultancy.