By now you should all know about Making Tax Digital (MTD) and how it aims to make it easier for individuals and businesses to get their tax right and keep on top of their affairs by using a fully digitalised tax system. Launched in April 2019, a large number of UK businesses registered for MTD and embraced the fact that they had a full 12 months to get to grips with the changes needed. Well, this ‘soft landing’ officially comes to an end in April 2020, at which point you need to ensure your company is 100% compliant. We take a look at what this means in practice.
Ensure you’ve got ‘Digital Links’ in place
From April 2020, any VAT registered business will be required to maintain a clear ‘digital journey’ or have ‘digital links’ between their accounting systems and the software they use to submit VAT returns. In effect, this means that any transfer of data should happen electronically without any manual intervention, so copy and pasting between different software products will not be acceptable. It also means you won’t be able to use HMRC’s own VAT online services to submit returns.
You can use as many software programmes as you wish, but each must be linked to the others to create a complete ‘digital journey’. And make sure that whatever systems you are using are capturing the right level of information, which must include:
- Business name, address, VAT registration number
- Details of any VAT accounting scheme used
- VAT account details
- Transaction data
Review your accounting software packages
Phase 1of MTD was fairly flexible with many companies opting to choose basic accountancy packages that worked well with Excel spreadsheets. Unfortunately, a lot of these simplified accounting software tools will not have the features required to be completely MTD-compliant. Before April 2020, take a look at how you are running your expenses, managing your tax calculations and recording supplies received and made. If you need to manually type, edit or copy and paste figures from one system to another, then you will need to invest in MTD compliant software. If you are using bridging software for MTD, then you can continue to use it, just as long as you don’t need to make any manual adjustments or interventions.
We are more than happy to recommend a few options and help you through the process.
Get ready for penalties
From April 2020, the suspension of penalties on late MTD filings comes to an end. Penalties are on a cumulative basis, based on the number of offences in the last 12 months and can reach 15% of the VAT due, plus fines of up to 100% of undeclared VAT. So, it really does pay to try to get everything up and running sooner rather than later.
Useful Making Tax Digital guidance
HMRC have provided a number of useful guidance documents to help you easily make sure you’re prepared for MTD:
- Making Tax Digital for VAT: VAT notice 700/22
- Recommended software suppliers
- Recommended bridging software suppliers
But if you do have any questions about MTD or how it may affect your business, please get in touch. We will be more than happy to help.