What happens if… I am unprepared for Making Tax Digital?

Making Tax Digital (MTD) is a key part of the Government’s plans to establish a more efficient, effective and user-friendly tax system, that makes it easier for individuals and businesses to stay on top of their affairs.

From 1 April 2019, around 1 million businesses, that are registered for VAT with a taxable turnover above £85,000, will need to keep their VAT records digitally and file their returns using HMRC-compliant software.

However, with a little less than four months to go until the regime is due to become mandatory, research conducted by the Institute of Chartered Accountants in England and Wales (ICAEW) suggests that over 40 per cent of UK businesses are unaware of their obligations under MTD.

Paper out, software in…

The regime will force those businesses and individuals within scope to maintain digital records, instead of manual records.

These digital records must be preserved in what is defined as ‘functional compatible software’ – broadly, software or spreadsheets (or a combination thereof) which can connect to HMRC via an Application Programming Interface (API).

If you’re reading this and thinking to yourself ‘I don’t know where to start and I’m concerned about the consequences of being unprepared’, then don’t put it off any longer; now is the time to get the ball rolling.

Assess your current situation

First thing’s first, you need to assess your current situation before you can be sure of what you need to do to fulfil your obligations. The likelihood is, you will find that one of the following three categories applies to you, as follows:

  • Currently using accounting software

If you already use software, then meeting your obligations may be a little easier but that doesn’t mean you should be complacent. The software that you are using must be MTD-compatible. If it is not, you must act to ensure that you are fully compliant ahead of your implementation date, whether by purchasing new software or upgrading your existing platform.

  • Currently using spreadsheets

HMRC has said that businesses can continue to use spreadsheets for record keeping but these must be combined with compatible software, capable of connecting to HMRC systems via an API, when making submissions.

  • Not using spreadsheets or software

If you fall into this category, you really must prioritise your preparations as a matter of urgency. From 1 April 2019, manual records will no longer be sufficient (subject to limited exemptions); hence, before this time, you must adopt an alternative means of maintaining your records and making VAT submissions to HMRC.

Compare software and find a resolution that’s right for you…

When choosing accounting software for your business, you should consider factors such as ease of use, pricing and key features.

Distinguish between features you cannot go without and those that you might consider a ‘luxury’; it’s essential that the software meets the fundamental needs of your business before anything else.

You should also bear in mind that, to satisfy HMRC, your chosen software must be able to:

  • preserve records in digital form;
  • create a VAT return from those records; and
  • achieve two-way communication, with HMRC, via the API.

Procrastination could lead to penalties…

HMRC previously announced proposed arrangements for both late filing penalties and late payment penalties, under MTD, as follows;

  • Late filing

Penalty points will accrue based on how overdue the filing is and the number of filings that have been submitted late. After the fourth late submission, a penalty will be charged for each late submission that follows. Points will be wiped after four compliant submissions.

  • Late payment

If payment is made more than 15 days late, a 2.5 per cent penalty would apply. This will increase to five per cent after 30 days, with daily penalties charged thereafter. If a payment is made or a Time to Pay (TTP) agreement has been sought between 16 and 30 days after the original due date, only half of the penalty will be charged.

However, the legislation for these reforms was dropped from the most recent Finance Bill (7 November); meaning that they are not due to come into force until April 2021 at the earliest. The government has said that, despite the delay, it remains committed to the reform of penalties and interest and intends to legislate in a future Finance Bill.

In the meantime, the existing penalty regime for VAT will be carried over into the MTD for VAT regime, beginning in April 2019.

How can we help?

If you know you’re within scope of the upcoming changes, you cannot afford to delay your preparations any longer. Now is the time to ensure you understand your obligations, to review your current practices and to decide how you intend to make the switch to digital ahead of April 2019.

We want to see the businesses we work alongside continue to thrive following the move to MTD and we are already helping many of our clients to look at it as an opportunity, not something to oppose.

We can help you when it comes to choosing and implementing a system matched to your businesses requirements and we can provide professional advice throughout the transition and beyond. We are able to work with a range of online accounting software packages so, when it comes time to take the leap, we have trained advisers on hand to provide as much or as little assistance as you require.

To discuss your circumstances in more detail with one of our experts, contact us today. To read more about MTD, why not take a look at our handy summary of the story so far, here or explore the MTD page on our website here.

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