Making Tax Digital for VAT goes live on 1 April 2019
Making Tax Digital (MTD) has been an HMRC target since 2015 and phase 1 is now a reality. Subject to a very narrow list of exceptions, every VAT registered organisation with annual VATable turnover which is over the current registration threshold of £85,000 will be required to comply, starting on the first day of their first VAT return period commencing on or after 1 April 2019.
This is a hugely significant moment, as HMRC are effectively ending the ‘analogue’ age of accounting and bookkeeping by requiring the use of digital platforms. We are comfortable with this change and we are sure that our clients will be too, as digital accounts bring many benefits over older systems. The Xero system that we and most of our clients use is already 'MTD Ready', so for the majority of our clients the change in VAT filing methods will be seamless. We have taken part in the pilot scheme and have already submitted an MTD VAT return via Xero.
We will address the small steps that our Xero VAT clients will need to take once the full scheme goes live in a future news item so for the moment we will focus on what other clients will need to do.
Firstly, double-check whether you need to comply with MTD for VAT or not. For most it will be obvious that compliance is necessary but we do know of scenarios where businesses have turnover over the £85k limit, but where the taxable turnover, i.e. the element that counts as VATable, is not. This could be because your business supplies services to overseas business customers and those services count as 'outside the scope' of UK VAT, or where you have a mix of VATable and exempt sales. If in any doubt, please check with us. Of course you may already be using a compliant system or may feel that you need one anyway as MTD for income tax and corporation tax will be coming soon, but at least the requirement to comply on the timetable below won't apply to you.
Secondly, the timetable. There are special transitional rules for annual accounting scheme users and some other organisations have a 6 month deferral period but the vast majority of organisations and businesses will be required to keep digital records under MTD from either 1 April 2019 (if you are on monthly VAT returns or have a June quarter end), 1 May 2019 (if you have a July quarter end), or 1 June 2019 (if you have an August quarter end). Ideally however you would have made the switch from day one of the accounting year in which the MTD change takes place.
Having established your start point you will need to prepare. You should already have an accounting system so you will need to establish whether or not changes will be needed. If you are using paper or a manual cash book then change will definitely be necessary. If you use a spreadsheet system then you may be able to use "bridging software" to convert this data into an MTD-compliant submission; however we would suggest that now would be a good time to look at alternatives, such as Xero, as the benefits to the business, quite apart from MTD compliance, could be considerable. Finally if you already use another software system then you should check with the software house or your IT provider to make sure that the system is either already MTD compliant or will be by your 'go live' date. If not, you will need to consider changing.
If a system change is necessary, your next step should be to contact us for advice on the best system for you, or for help liaising with your IT providers. For most clients we will recommend Xero, as we chose this as our preferred system back in 2013 and have yet to see a better system on the market. We have experience in converting clients onto Xero from many different systems. For example a transfer from a well-ordered desktop Sage system can be run overnight, taking two years worth of data and all of your current customer and supplier details and balances, as well as your existing coding structure and any departmental breakdowns with it. Year-ends are the best time to change but with this kind of transfer any month-end will work as well.
MTD for VAT may be an HMRC initiative but for once it's not all bad - having better, timelier records means better, timelier information and therefore better decisions (and more time!). Contact us now to discuss how we can help.