Over the last few years, HMRC has gone through a lot of changes. Most notably, they have embraced the digital world, bringing in new schemes designed to transform the way businesses manage and submit their tax information. It’s supposed to be more effective, efficient and easier for taxpayers to use. The first of these major changes starts in April 2019 (which is only 8 months away after all) and is centred all around VAT for businesses. In this article, we explain what this new change is, and how you as a business owner can embrace it.
What Is The Maxing Tax Digital Initiative?
The MTDfb (making tax digital for business) initiative means that from the 1st of April 2019, any VAT registered business earning above the threshold of £85k will be required to keep digital records, and submit VAT returns using a compatible piece of software. This means that they won’t be allowed to keep manual records (as opposed to just being advised not to), and submit their VAT returns through HMRC’s API platform (instead of entering the information manually into HMRC’s portal). But this isn’t going to be a hard changeover. There will be a ‘soft landing’ for 1 year after launch, which will allow businesses to keep submitting their returns in the old format as they get ready for the changes.
Who Is Affected By This Initiative?
Any business who is VAT registered, with a taxable turnover above the VAT registration threshold (which is, at time of writing £85,000) will be required to submit their VAT returns digitally to HMRC under the new initiative. But businesses who are voluntarily registered for VAT who have a taxable turnover under the VAT registration threshold won’t be required to submit digitally. The requirement for digital submission also applies even is the taxable turnover of the business falls beneath the threshold in the future – and only case to apply if the business de-registers for VAT.
What Does Compatible Software Mean?
When the regulation says your VAT returns must be submitted using compatible software, that can be a bit confusing. But all it really means is that you need to be using a brand of digital accounting software that is approved by HMRC. At time of writing, there are 18 providers who have been approved, with more being added to the list as the deadline draws nearer. The 18 providers already signed up are:
- Clear Books
- Go Simple Software
- Intuit QuickBooks
- Liquid Accounts
- Quickfile Accounting Software
- Tax Optimiser
In other words, most of the big name accounting software, along with several specialist software suppliers as well. And since there is still plenty of time until the chance comes into effect, HMRC estimates many more firms will be added to the list of compatible software providers. Businesses who already use a software tool for their VAT returns are advised to check with their supplier if they plan on making their software compliant with the new Making Tax Digital rules.
At Cove Accountancy Services, we work with a lot of businesses who work with manual accounts and bookkeeping records. Trades in particular are pretty susceptible to this, and so the next year will be a big transition. We can help businesses like this understand the new changes to VAT and digital tax, and move their systems into the digital age, ready for April 1st. for more information about Making Tax Digital, or to find out how we can help you get ready, just get in touch with the team today.