Making tax digital – what you need to know

The requirement to report VAT returns electronically looks set to begin in April 2019, and if your business is VAT registered then you must ensure you are prepared. Ryan Pearcy, a business advisory director at Scrutton Bland explains what this will mean for businesses in the region.
 
What’s the difference between Making Tax Digital and Making Tax Digital for VAT? Making Tax Digital is the umbrella term for the government’s plans for moving businesses and individuals from paper-based to electronic tax reporting. Their aim is to make tax administration more efficient, more effective and easier for taxpayers to get their tax returns right. The first stage in this plan is Making Tax Digital for VAT which requires VAT registered businesses with a taxable turnover above the VAT registration threshold of £85,000 to keep their VAT records in a digital form and file their VAT returns using software compatible with HMRC’s systems.
 
Will Making Tax Digital for VAT (MTD4VAT) definitely come into effect from April 2019?
The crystal ball question! Like any project from the government, delays, alterations and cost overruns seem to be the normal course of doing business. Making Tax Digital has already been delayed twice. The most recent delay was just a partial one, putting back the staging date for complex VAT schemes where HMRC’s internal systems are not yet ready to receive this information. The systems for standard VAT schemes have been tested and are currently working, albeit on a small scale. On that basis, it is very unlikely there will be a further delay.
 
Does my business need to be compliant from April 2019?
Firstly, it will depend on what VAT scheme you are on and if your VATable turnover is over £85,000. If it isn’t then you don’t need to worry. If it is, then businesses that have a group VAT scheme or run an annual VAT scheme (as well as some others) can defer their staging until after October 2019. For the main VAT schemes such as monthly and quarterly, accruals and cash-based schemes the staging date is the first reporting period after April 2019.
 
If you report monthly it is April 2019. If you report quarterly, then this depends on your quarter end. A May 2019 quarter end would have a staging date of 1st June as this is the first period that begins after April.
 
If my VATable turnover is below £85,000 I assume it doesn’t affect me?
MTD4VAT doesn’t affect you. You can choose to opt in, but once you are part of the scheme you cannot come out unless you deregister for VAT. Making Tax Digital for business tax is still proposed to come into effect from April 2020 and at present this has no minimum starting point, so will affect every business and landlord no matter what their level of income may be. There is a general feeling in the industry that this will get deferred and a de minimus will be brought in, but this has not been stated by HMRC.
 
What information gets sent to HMRC?
For MTD4VAT, only the nine boxes that you currently report on through the government’s HMRC gateway. There is an option for you to report supporting information but there is no requirement to do this as yet. Most software providers are going above and beyond the requirements to provide additional information to their users, showing periods HMRC are expecting to see and whether returns are shown as paid. For Making Tax Digital for business tax this will be quarterly information similar to that declared on the annual return.
 
Isn’t this just another cost for small businesses?
A recent review from the House of Lords said the government understated the cost that Making Tax Digital for VAT will have on small businesses. They do have a point since the cost of software, transition and training can be quite a hit for small businesses. That said, the report did miss the potential for utilising free bridging software that businesses can use to link their excel records to HMRC. It also doesn’t cover the fact that some advisers are including software costs in their accountancy fees, which are similar to the prior year, and a few, such as Scrutton Bland, are providing free training.
 
What is the best software for my business?
That very much depends on your business. With Making Tax Digital for business tax proposed to come in following the VAT roll out, our advice to all businesses is to use an established cloud financial software provider. Although this may cost more than Excel, the advanced functionality makes compiling your business finances far easier and should reduce your compliance fees with your accountant. With regard to which cloud software, you should speak to an independent app adviser who can provide you with a solution following a quick assessment of your business’s operations. There are currently over 60 software suppliers whose products are suitable, including Xero, Quickbooks and Sage – but businesses should ensure they have the most recent version, as older versions may not be compatible.

Making Tax Digital Events
At Scrutton Bland, we are running a series of free seminars about Making Tax Digital across our offices in Ipswich (24^th January), Cambridge (29^th January) and Colchester (7^th February). To book a place, email events@scruttonbland.co.uk or call 0330 058 6559.