Advertising for accounting software has increased quite markedly as the 1st April approaches; this is the start date for Making Tax Digital (MTD) for VAT, part of the government’s initiative to make the UK’s tax system “fit for the 21st century”.
Along with the advertising however, various myths and scare-stories are circulating. Here’s a guide to the key “dos and don’ts” of MTD:
Things you must do.
- Assess whether MTD affects you – are you registered for VAT with an annual turnover* of more than £85,000, the current threshold for registering for VAT?
*this is turnover on which you have to charge VAT whether it is at 0%, 5% or 20% (‘exempt sales’ (e.g. rent charged on residential property; supplying MOTs or supplying insurance) and ‘sales outside the scope of VAT’ (e.g. goods and services sourced and used outside the EU) are ignored).
- If the answer is yes, you will need to comply with the new MTD legislation which requires you to:
- Sign up for MTD using your existing Gateway username and password – this is not re-registering for VAT.
- Maintain ‘digital records’ i.e. using accounting software or spreadsheets. The days of manual records are numbered; you can still use them, but it could involve a duplication of effort, as each transaction must be recorded digitally.
- Submit your VAT returns via HMRC’s new platform using ‘compatible software’ as found in Cloud-based accounting software, or via separate ‘bridging software’.
- Decide when is the best date for you to sign up:
If MTD applies to you, you must start following its requirements for your first VAT return that starts on or after 1st April 2019. For instance, if you have a VAT return ending on 31st March, it would be advisable to file your March return and then sign up for MTD. If you sign up before submitting your March return, this would have to be submitted under MTD.
- If, like 45% of VAT-registered organisations in the UK, you are registered for VAT voluntarily, decide whether you will follow the requirements of MTD, and note the following:
- You can change your mind later and stop following MTD as long as your turnover has not exceeded £85,000.
- If you decide not to follow MTD, continue to file your VAT returns via HMRC’s ‘old’ portal.
- Monitor your turnover on a rolling twelve months basis – if it exceeds £85,000 then you must follow the requirements of MTD.
- Take positive action – MTD for your business won’t happen unless you sign up for it.
Things you don’t have to do.
- You don’t have to use accounting software if it’s not suitable. Sage, Xero, QuickBooks, FreeAgent, and the like, certainly have their uses, and can, like the adverts say, make your admin time more efficient, but they do not suit every business.
A viable alternative is to use a spreadsheet to record your accounting transactions. The spreadsheet will need to be structured in an appropriate fashion to record information that the new legislation requires. Your VAT returns can then be submitted from the spreadsheets using ‘bridging software’ (available from the internet) that create a link to HMRC’s new submissions platform.
- You don’t have to use cloud-based accounting software; you may be able to carry on using your existing package, depending on its capabilities, although your provider may suggest you upgrade.
A viable alternative is to export your VAT reports onto a spreadsheet and then submit the return via ‘bridging software’ that creates a link with HMRC’s new submission platform. The downside here is that you must rely on your existing software not ‘falling over’.
- You don’t have to change the dates on which your VAT quarters end simply because of MTD – your quarter ends may absolutely suit your business cycle, they do not have to change.
Your VAT circumstances are unique to your organisation; if you remain unsure about your options or your obligations under MTD for VAT, please get in touch with your accountant.
Whitley Stimpson has a team of specialists who advise on all tax matters including Making Tax Digital for VAT. For advice, please contact MTD expert John Skinner on 01295 270200 or JohnS@WhitleyStimpson.co.uk
To see how to sign up for MTD, please refer to this link to YouTube but be careful of when you sign up though – see above.
To see how bridging software works, please refer to this 8-minute link. Other software is available, please do not regard this as an endorsement.
If you need greater detail, here is VAT Notice 700/22:
And to assist you further we have produced three short videos to explain what you need to do to comply with the new MTD regulations.