Your accountant should be aware of these already, but here, our Marketplace Partner Melrose Group has taken a look at the main areas that will affect your business.
In April, a new initiative by HMRC which has been talked about since 2015 is arriving. Making Tax Digital is designed to make sure that the UK tax system is effective, efficient and easier for taxpayers. As HMRC recently pointed out although 99% of VAT returns are filed online, only around 13% of returns are filed direct from software. This has led to what HMRC believe is an annual loss of £8billion solely down to inaccuracies when filing. So MTD aims to resolve this problem by making all VAT returns submitted using compatible software.
VAT registered businesses will be the first businesses that have to comply with MTD for VAT. Therefore, if your sales are over the £85k turnover threshold you will have to be using functional compatible software from the start of your first VAT return period beginning on or after 1 April 2019. If you are below that threshold, then the date which you must comply to MTD has not been confirmed yet, but HMRC are advising to start MTD as early as possible so that when the start date for you is announced, the practice of this is already in play!
You should by now have received an encouragement letter from HMRC as the second wave were due to be posted by the end of November. This is to ensure that all businesses are aware of MTD and the implications of exactly what this means.
We have summarised this as:
1. No more excel spreadsheets (unless you have bridging software) - all records must be kept digitally
2. The accounting software you are using must be MTD compliant
3. Daily sales must be entered onto the software
4. Individual purchase invoices must be entered onto the software (not statement balances)
5. Maintaining paper records will no longer be a legal requirement
The list of MTD compliant software is available on the HMRC website but the main key features it must have is the ability to:
1. Keep records in a digital form
2. Preserve records in a digital form
3. Create a VAT return from the digital records
4. Provide HMRC with VAT returns and voluntary information by using the API (Application Programming Interface) platform. This will include messages about a requirement to file and the confirmation of filing but also will allow HMRC to ‘nudge’ both yourselves and your agents (if you have one) to comply with any action required.
There will be a 12 month soft landing period where businesses can adjust to MTD, however late filing penalties based on a point system will begin after this period and these points have a shelf-life which will expire after a certain time of compliance.
Therefore, as the title stated, the countdown is on, and you need to be talking to your accountant or your client about how MTD is going to impact you next year and put a plan in place to ensure that you are MTD ready!
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