A new poll of Midlands-based finance directors has revealed that four in ten believe their businesses are unprepared for new digital VAT rules which come into force in less than four months’ time.
The survey of 640 finance directors across the Midlands carried out by audit, tax and consulting firm RSM, found that 44 per cent of respondents in the region said they were either somewhat or very unprepared for the new Making Tax Digital for VAT rules, while only 1 per cent described themselves as very prepared.
The regional figures reflect the UK-wide concerns. In total, 41 per cent said they were unprepared with only 4 per cent saying they felt very prepared.
Making Tax Digital (MTD) is the Government’s ambitious plan to bring the UK’s tax system into the 21st century by transforming the way taxpayers interact with HMRC.
With only a few exemptions, VAT-registered businesses trading over the VAT threshold of £85,000 will be required to keep records in a digital format, ensure that the transfer or exchange of VAT information is digitally linked and submit their VAT return information to HMRC using MTD compatible software.
Any business affected by these changes must ensure that they are using MTD compatible software by April 2019, although the introduction for more complex businesses has been deferred to October 2019.
To be ‘compatible’ the software must include an Application Programme Interface (API). The API will create a link between the business’s accounting software and HMRC’s systems. The API will enable the business to submit their VAT return figures to HMRC directly from their accounting software.
HMRC has indicated that there will be a ‘soft landing’ between April 2019 and April 2020 for ‘non-complex’ organisations. This ‘soft landing’ should also apply for a 12-month period until October 2020 for ‘complex’ organisations. During this time there will be no financial penalties for failing to have digital links in place between the accounting and the API-enabled software. There must, however, be an API creating a digital link from the outset between the accounting records of the business and HMRC.
Steve Hodgetts, VAT partner at RSM said: ‘With just four months to go before Making Tax Digital becomes a reality, it’s concerning that so many businesses appear to be so unprepared.
‘There are still some people who believe that Making Tax Digital has been shelved amid uncertainty surrounding the Brexit outcome, but this isn’t the case. The only delay has been for more complex organisations who will have an additional six months to get ready. For everyone else, the 1 April 2019 still applies.
‘Affected businesses really need to make the next four months count, to ensure that their software, systems and people are all ready for the change. ‘