It was never a real surprise that the Government would want to collect tax digitally at some point – even before the first announcements about its ‘Making Tax Digital’ initiative; after all, most things are done digitally in the 21st century, writes Jo Benson, HBP Systems’ Software Support Team Leader.
These are some of the questions we’re being asked most often, in our area of expertise, which is accounting software, and we thought it would be helpful to bring all the answers together in one place.
What is ‘Making Tax Digital’ all about? In the longer term it’s about everyone having a single picture of their tax liabilities all in one place, very much like online banking. The target date for that is 2020, which is not really that far away.
I’ve heard that Making Tax Digital goes live for VAT on April 1st2019. Is that right? Yes, from April 2019, those with a turnover above the tax threshold of £85,000 will have to keep their records digitally and provide their VAT return to HMRC through compatible software
So if it goes live on April 1stnext year, should I already be recording transactions in an accounting software package? We’re not able to give you a definitive answer on that. However, advice from the Institute of Chartered Accountants in England and Wales suggests that April 1st2019 is the date from which record keeping in the new way should start.
I already do my company’s VAT online by filling in a form every quarter. Does that mean I’m doing my tax digitally already? Sadly no, it doesn’t. HMRC is aiming for closer links using accounting software. The ambition is that the digital account that’s developed will be an increasingly personalised picture of everyone’s tax affairs. It will prompt, advise and support through webchat and secure messaging. Digital record keeping software will be linked directly to HMRC systems, so customers can send and receive information directly from their own computer networks.
I submit VAT payments for a charity. Do I still have to follow the Making Tax Digital rules? If the turnover is over that £85,000 figure, then yes, you do. For HMRC’s purposes, when they say ‘business’ they mean sole traders, partnerships, limited companies and charities too. Everyone’s included.
Can I use spreadsheets to record the data? The regulationsabout MTD for VAT call for ‘functional compatible software’. Spreadsheets aren’t referred to specifically, but it doesn’t say they can’t be used. Some Spreadsheets will need to be combined with third-party commercial software, using APIs, to ensure a seamless flow of data in both directions between the business and HMRC. At HBP Systems, we’re are not aware of any third parties currently offering such Excel add ins.
Do I need to store electronic copies of every transaction? You won’t be required to do that. The regulations show a list of the information you must keep, and ‘electronic copies of documents’ isn’t on it. The information you’ll need to send to HMRC is just the same as it is now. You’ll need to record each transaction, but you won’t need to submit them all. Remember that there are penalties for not keeping proper records.
So, what software can I use to make my submissions? We are advising our clients on an individual basis regarding this, as it does depend on your circumstances and whatever software you are currently using. We advise speaking directly with your software vendor for more information, but we can confirm that all major software vendors we work with are working on version updates to make you compliant with MTD.
What should I be doing now? At the moment, we would certainly advise reviewing your VAT return processes. If you are not already using the VAT functionality within your accounting package, we advise starting to do this sooner rather than later – and this may be something we can help with. Then when your vendor does release any version updates or patches in time for April 2019, you’ll be as ready as you can be for any changes that may need to be adhered to.
And finally, it’s worth remembering that you don’t have to work through this alone. There’s every chance you’re not the first person to have come up with a particular question, and my helpdesk colleagues and I may already have the answer. It’s in everyone’s interest to help get MTD in place as smoothly as possible.