Making Tax Digital (MTD) for VAT came into effect on 1 April 2019. There are critical steps that businesses should be taking to ensure they are ready before completing the registration process.
MTD for income tax and corporation tax purposes is still in the pipeline and will not be implemented before April 2021 at the earliest.
Which businesses are affected?
As part of MTD, VAT-registered businesses with a taxable turnover above the registration threshold of £85,000 will need to keep VAT records digitally and file their VAT returns using MTD compatible software. This will apply from their first VAT period starting on or after 1 April 2019. After this time, it will no longer be possible to submit VAT returns via the HMRC Gateway. Instead, third-party software will be required to comply with the regulations.
What needs to be done?
Two categories of businesses need to take specific action to become compliant with MTD for VAT:
- VAT-registered businesses above the £85k threshold not using online accounting software.
- VAT-registered businesses using Sage desktop.
VAT-registered businesses not using online accounting software...
... have a big decision to make around choosing a compliant online software package and getting staff trained and using the new system before the April deadline comes in.
Such businesses will need to review the key reasons for using their existing software and consider the benefits of moving to a cloud-based supplier in future. These often include saving time and money, as well as providing up-to-date account information, which means smarter, more productive businesses with decisions made with real-time management information.
Approached in this way, moving to a new MTD compliant accounting software can provide businesses with additional benefits to improve their finance function.
VAT-registered businesses using Sage desktop software...
... will need to take urgent action as they will no longer be able to file their VAT returns with HMRC directly through the software. Instead, an upgrade is required to either a subscription basis or by buying a new ‘MTD Subscription’ module add-on. To help with the transition, Sage is offering discounts to businesses signing up to its monthly subscription package.
Action for non-VAT registered businesses
VAT-registered businesses with a taxable turnover below the VAT threshold will not have to operate MTD but can still choose to do so voluntarily.
Non-VAT-registered businesses looking to change their accounting software should use the MTD VAT deadline as an opportunity to modernise their finance function and take the same approach as businesses outlined in above.
The benefits of moving to an MTD-compliant software are obvious, but there are also opportunities to develop a strategic advantage over the competition by reviewing software needs, assessing products on the market and choosing a product that helps to transform the time, money and effort spent on accounting and compliance procedures.
Regardless of the type of business you manage, preparing for digitised VAT accounting now will put you in a stronger position to cope with further MTD initiatives, such as income tax and corporation tax.
Please contact Matt Reid in our tax team with any questions on Making Tax Digital: email@example.com.
Please contact Andy Fuller in our accounting team with any questions about software selection: firstname.lastname@example.org
If you need help making your decision about which package to choose, please read our factsheet ‘Evolving your accounts system and moving to the Cloud’.
You can also find out more about MTD for VAT on the HMRC website: https://www.gov.uk/government/collections/making-tax-digital-for-vat.
Attend one of our free MTD software demos
You can find out about MTD compatible cloud software at our free breakfast workshop event being held at our offices on Wednesday, 5 June.
To book your place, please contact Andy Fuller: email@example.com.
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