All VAT registered farm businesses must adopt the government’s Making Tax Digital (MTD) for VAT agenda from April this year, regardless of annual turnover.
In April 2019, HMRC made it mandatory for all businesses with a turnover above the VAT threshold of £85,000 to submit digital VAT returns as part of its 10-year plan to digitalise the tax system.
At the time, businesses with an annual turnover below this figure could still submit their VAT returns in the traditional way.
But this is changing. Unless you are granted an exemption, all VAT registered businesses regardless of revenue will have to transition to a digital system from April this year, and this could mean a big change for many farmers.
The new rules will apply to VAT return periods that begin on or after 1st April 2022. Therefore, if you have a VAT quarter that ends on 31st May 2022, you do not need to be MTD compliant until 1st June 2022, but it is still worth preparing now.
What does it mean for me?
Moving to a digital system involves two significant changes to the way many farms and other rural businesses operate. It will require them to:
- Keep digital VAT records
- Provide VAT return information to HMRC through compatible software.
Businesses will also need to sign up to MTD to do this, prior to their first return. You should speak to your current VAT advisor about this before registering as timing is key.
Keeping digital records
There are two ways of keeping digital VAT records. If you’re using Excel sheets to carry out bookkeeping, it will be possible to continue doing this. However, you will need to get what is called bridging software to be able to connect the Excel data sheets to HMRC and submit your VAT returns digitally.
There are numerous types of bridging software available, but like any other software platform, learning how to use them is essential. If you don’t know where to start with this, we can advise on the best bridging software for your needs and help you to get to grips with it.
The other option is to adopt an accountancy software package into your business. Lots of farms and rural businesses already use these and all industry standard packages such as Sage, Xero, QuickBooks, and others are compatible with MTD.
Of course, both solutions rely on a reliable broadband connection, which not all farms enjoy. If this is the case, it might be wise to speak to your broadband provider about what you can do to improve this. It may simply be a case of upgrading your internet package or installing boosters to improve the signal around your house.
The biggest change will be for those farmers who still use a paper system. If you fall into this bracket and have no idea where to start when it comes to MTD, get in touch on (01295) 270200 and we will be able to advise.
Submitting digital tax returns
The second requirement after adopting MTD compatible software, is to submit your VAT returns digitally.
Once you have got to grips with your software, whether that is bridging software used in conjunction with Excel or it is dedicated accountancy software, submitting a VAT return through it is fairly straightforward. If the software is kept up to date, most packages will calculate the VAT you owe automatically and enable you to submit your return at the click of a mouse. The software can link with your bank account too, enabling you to pay the outstanding amount online.
The benefits of submitting VAT online
Although for many farmers, changing to a digital system might seem daunting there are real benefits to doing so.
Once you get the hang of it, the software needed for you to fulfill your obligations to MTD will make reporting and submitting information to HMRC much more efficient, less time consuming and less stressful.
Many farms and rural businesses are on track to meet the upcoming deadline, but some are less confident of what they need to do.
If that is you and you’re in need of guidance on how to take the first steps in MTD, or you’re on your way but simply want someone to check you’re doing everything right, don’t hesitate to get in touch on (01295) 270200 or fill in the contact form here https://www.whitleystimpson.co.uk/contact/.