I run a small business and I have received a letter from HMRC about Making Tax Digital for VAT and a deadline of 1 April. What do I need to do?
The countdown is on until the UK Government’s digital tax reporting system, Making Tax Digital, opens for VAT-registered businesses on 1st April 2019.
The Making Tax Digital (MTD) initiative is designed to bring the UK’s tax administration into the 21st century, while making the reporting process simpler and more efficient for taxpayers.
All VAT-registered businesses with a turnover above the current £85,000 VAT threshold will be legally required to digitally record their books and file VAT returns using MTD-compliant accounting software.
According to HM Revenue & Customs (HMRC), 99% of all VAT returns are filed online, but just 13% of these are filed using software. The remaining 87% are manually entered in to HMRC’s Government Gateway.
However, the arrival of MTD for VAT will mean affected businesses can no longer file their VAT returns using the Government Gateway website. Instead, they will have to submit their returns using MTD-compliant software.
HMRC have stated they will not be offering software to help small firms comply with Making Tax Digital for VAT. Some businesses may already be using bookkeeping software that can file directly with HMRC. However, if you’re affected by MTD for VAT and your business is using spreadsheets, handwritten records or non-compliant software, you may need to change your systems, invest in new software or ask your accountant to help you meet your obligations.
MTD is intended to help you keep track of your tax position throughout the financial year and all in one place- your personal tax account and your business tax account if you are self-employed.
There are many advantages, including:
• Ensure the details HMRC holds about you are accurate – new digital tax accounts will make it easier to check the information HMRC retains about you and your business is 100% correct.
• Eliminate human error – MTD compliant tax reporting software will enable HMRC to review your tax information almost immediately, drastically minimising human error from data input.
Better clarity over your tax position – benefit from a clearer understanding of how much tax is owed and when within your digital tax account.
Easier contact with HMRC – your new digital tax account will be designed to liaise with HMRC easily online via secure messaging and webchats.
HM Revenue and Customs (HMRC) has warned that VAT-registered businesses have just four weeks until the introduction of Making Tax Digital for VAT. HMRC estimates that 1.2 million businesses will need to comply but only 30,000 businesses have signed up early to the Making Tax Digital pilot.
HMRC hope that digitising the VAT return system will help to reduce the time businesses spend on their administration and bookkeeping in the long run, while making it easier for them to accurately calculate their VAT liability.
Ahead of the 1st April 2019, there are some steps to make sure you’re ready for MTD for VAT:
• Familiarise yourself with the rules. Will it apply to your business and if so when?
• Establish if your bookkeeping systems and software are compliant with MTD for VAT
• If you’re using a bookkeeper or accountant, make sure they’re ready for MTD for VAT
For more information of Making Tax Digital please click here
The advice above is specific to the facts surrounding the questions posed. Neither FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.