Making Tax Digital is here
Making Tax Digital for business will completely transform the reporting of all business tax affairs with a fully digitalised system. The reason for the change is to make tax administration more effective, efficient and easier for taxpayers, whilst also reducing HMRC’s overheads for managing tax affairs.
MTD for VAT – Key Facts
This affects all VAT registered businesses, except businesses that are registered voluntarily with taxable income less than £85,000.
The majority of businesses are now affected (as of 1 April 2019) although there is a six month deferral to 1 October 2019 in place for:
- “Not for profit” organisations that are not companies
- VAT divisions
- VAT groups
- Government departments
- Local authorities
- Public corporations
- Traders based overseas
- Businesses in the annual vat scheme
The first VAT return submitted for the period commencing on or after 1 April will have to comply with the new rules and cannot be submitted through the Government Gateway. Unless businesses file monthly or have a short VAT period, the first returns to be submitted under the new regime will be to 30 June and will need to be submitted by 7 August.
The return will have to be submitted directly through MTD compliant software. Initially, it was thought that the VAT returns filed for MTD would have to include a full transactional breakdown for the period. But at present it is still just the same 9 boxes that will need to be submitted.
Once businesses are signed up to MTD for VAT, even if your turnover drops below £85,000 they will have to stay in the scheme. If turnover is below the threshold businesses are still able to opt into the MTD system.
MTD for VAT – Solutions
To be MTD for VAT ready, businesses need to have in place:
- Compliant accounting software or
- Bridging software
Compliant accounting software
This will record all accounting transactions and is also capable of making the VAT submission directly to HMRC.
HMRC are maintaining a list of compliant software, but we would definitely recommend contacting your software provider to check, if you have not yet made the move to MTD.
This can be very useful where businesses have a bespoke system linked to other key software needed to run the business.
A word of warning on bridging solutions, is that they are entirely that, a bit of a “make do for now” solution given HMRC’s longer term aims. But it does buy time to enable businesses to fully consider the options rather than rushing into a change of system.
When adopting a bridging software solution, it is important to have an understanding of “digital links”
Data must be transferred to the bridging software digitally.
- If using spreadsheets, the creation of the VAT return from the source documentation must be formula driven
- HMRC has specifically ruled that copy and paste does not constitute a digital link
- There is a 12 month soft landing period for penalties in connection with digital links
There are many providers offering bridging software solutions, but it may be preferable to simply outsource the submission to ourselves using our successfully tested bridging solution CCH One Click.
MTD for VAT – Registration
Businesses could be excused for thinking that once they have an MTD for VAT solution in place, they are MTD for VAT ready. Unfortunately, that is not the case and there is also a registration process to go through with HMRC.
Businesses must sign up to MTD with HMRC and ensure the software is switched on for MTD submissions.
The timing of registration is critical, as soon as the business is signed up, HMRC will required MTD compliant returns to be submitted. It is recommended that businesses do not sign up until the final non-MTD return has been filed.
Timing if VAT is NOT paid by direct debit
- Allow at least 24 hours after submission of the last non-MTD VAT return
- Sign up through the HMRC website using existing Government Gateway log in details
- HMRC will confirm once registration has been successful via email, usually within 24 to 72 hours
- Businesses should not attempt to submit an MTD VAT return until confirmation of registration has been received
- The final step is to enter Government Gateway details into the compliant software
- For additional guidance follow the relevant link for your business:
- Xero: https://central.xero.com/s/article/Switch-to-our-new-VAT-return-for-MTD
- Sage: https://ask.sage.co.uk/scripts/ask.cfg/php.exe/enduser/std_adp.php?p_faqid=41885
- Quickbooks: https://quickbooks.intuit.com/community/Making-Tax-Digital/Authorise-QuickBooks-to-interact-with-HMRC-MTD-for-small/m-p/247748
Timing if VAT is paid by direct debit
There is a more restricted sign up period
- You cannot sign up within the 5 working days after the deadline for your last submission
- You must sign up at least 7 working days before the filing date of your first MTD VAT return
Cloud Based Solutions – Benefits
In simplistic terms, cloud-based accounting allows businesses to be paid faster via means such as mobile invoicing, automatic reminders and online payments. It also provides the opportunity to automate bank transaction imports, reconciliation, payments and much more. With digital accounting anyone can quite literally run their business from the palm of their hand. Being able to access real time information in an easy to use format keeps business owners better connected to their finances and allows for a better informed and speedier decision-making process.
With live data held securely in the cloud, not only can our clients access their accounts from anywhere at any time, but so can we. We embrace using the latest technology, providing our clients with the very best service available to them. We have partnered with Xero, who have always stood out against the rest, as providing a user friendly, intuitive cloud-based accountancy platform.
Our partnership with Xero
After being partners with Xero, the global market leader in online accounting software for over five years, we are pleased to be at Platinum Partner status with them. Platinum status has been achieved as a result of the high volume of clients Garbutt + Elliott helped transition from traditional accounting to cloud-based accounting, as part of our strategic direction to offer a cloud-based accounting solution to our clients, ahead of the, now passed, Making Tax Digital deadline.
Our partnership with Receipt Bank
As one of the 700 plus add-ons available through Xero, we have chosen to partner with Receipt Bank due to their user-friendly and intuitive interface, making it the best choice for our clients. The partnership with Receipt Bank means that we can offer even more added value to our clients. With a simple snap, businesses can instantly scan their receipts, which then go through a data extraction process via Receipt Bank. It is an excellent, hassle free way for clients to transform their paper documents directly into data in their accounting, via app or email, eradicating the need for manual data entry. Removing the requirement of manual entry and by increasing automation, our clients are not only able to shave hours off their admin time, but also increase the accuracy of their records giving them greater confidence in their decision making.
Your next step
MTD is a great opportunity to review your current systems and ensure they deliver quality management information and to provide you with a clear overview of your financial position in real-time, to enable more informed decisions to be made when it comes to running your business. Although the deadline has now passed, you can still make a smooth transition from traditional accounting to cloud-based accounting. Whether you are a small or large business or currently a client or not, we are able to help you get set up and are here to answer any questions that you may have.