Who is affected?
Any business or trader with an annual turnover in excess of £85,000 (the current VAT threshold), will be required to enter in to the Making Tax Digital (MTD) regime.
When does MTD come in?
Any business that falls in to the MTD regulations will be required to comply as from the first VAT period (not accounting period) that begins on or after 1 April 2019
Professional accountancy bodies are pushing for the commencement date for each business to be the start of their accounting period that begins after 1 April 2019, but there are currently no signs that HMRC are prepared to amend the implementation dates to this approach. Hence businesses could currently find themselves having to start using MTD compliant software part way through an accounting period.
The turnover that must be included to see whether the £85,000 is exceeded includes both sales that are subject to vat and zero rated sales. Any exempt sales or "outside the scope" need not be included.
As soon as any business believes its turnover, as described above, for a rolling 12 month period will exceed the £85,000 threshold, it will be required to register for VAT if it has not already done so, and implement MTD for the start of the next VAT period after its turnover has exceeded the registration threshold.
Is anyone exempt?
Businesses will only be exempt from MTD if they can demonstrate one or more of the following:
- they are subject to insolvency procedures
- the business is entirely run by practising members of a religious society whose beliefs prevent them from using computers
- it is not reasonable or practical to do so
This third category may include such things as problems with accessing the internet or computer equipment due to age, disability, or the remoteness of the business location. Hence to be able to demonstrate that this category applies will be extremely hard.
So what is "Making Tax Digital" and what does it mean to my business?
In order to comply with the new regulations that come in to force as from 1 April 2019 each business will be required to keep its records in a digital format that will enable them to submit quarterly returns to HMRC from suitably compliant software. Hence maintaining records on spreadsheets as many businesses currently do will not be sufficient.
It should also be pointed out that HMRC will NOT be making available any free compliant software.
What should businesses be considering going forward?
As has been mentioned above the number of businesses that will be able to claim one of the exemptions will be few, and the implementation date is unlikely to alter.
In order to ensure that your business is ready and prepared for MTD records will need to be kept on some form of digital MTD compliant software, and if you anticipate your business will be affected by this new regime you should start to plan for it now. It is only just over 12 months away.
- Decide upon which computerised software package you will use if you are not already using one
- Make sure the software you are using is up to date and will be MTD compliant
- Start to use it well before the implementation date to ensure you are proficient with it by then,
- Preferably start to use the software from the start of an accounting period
- Talk to your accountant before committing to any software. They will often be able to provide advice on which will best suit your needs, provide training and assistance, and will help ensure a smooth transfer of information at year end for preparation of your annual accounts and tax returns.
- Should you feel this is all too much then again talk to your accountant in order to discuss the possibility of passing the whole task over to them to maintain.
And Finally ....
Making Tax Digital will mean change for many businesses, but it is not all bad. Most of the MTD compliant software will be cloud based, allowing both you and your accountant being able to look at real time information. Data will be available wherever you have an internet connection. Most of the software providers are now marketing their programs on a monthly subscription basis, so whilst there will be an ongoing cost that you may not currently incur, your software will always be up to date with the latest version, and help with any issues or problems encountered should be readily available.
This is an very important change that will soon be here, so please do give me a call to discuss your particular requirements and together we can plan to make any changes as seamless as possible.