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MTD compliance for businesses: Post-deadline edition

In the UK, an estimated half a million VAT registered businesses comply with the requirements of Making Tax Digital. The CIOT and ATT are warning businesses against making a false start with MTD by signing up too early – the consequences of which can be hugely problematic for Her Majesty’s Revenue and Customs (HMRC). While 1st April 2019 is the start date for maintaining digital accounting records, it is not the deadline to sign up to Making Tax Digital.

As per a press release, Adrian Rudd, Chair of the joint ATT/CIOT Digitalization and Agent Strategy Working Group, says: “We are concerned at the misconception that  to be compliant businesses must sign up to Making Tax Digital by the ‘deadline’ of 1 April 2019. This is wrong. While the requirement to maintain digital records applies to many businesses from 1 April, signing up to Making Tax Digital can, and in many cases should be done at a later date.”

Misinformation about HMRC and its regulations could have real difficulties in:

  • Submitting the VAT returns
  • Timely payments of the VAT liability

In some cases, it might affect both.

Businesses will need to work closely with HMRC to put things right and may be at risk of penalties in case of non-compliance. This article is designed to inform you about the next steps. It also intends to clarify any concerns you may have at this stage of HMRC’s implementation.

What is MTD?

Making Tax Digital is a vital part of the UK government’s plans. It is aimed at making it easier for individuals and businesses to get their taxes right and stay on top of their affairs.

HMRC’s ambition is to become one of the most digitally advanced tax administrations in the world. Making Tax Digital, is making fundamental changes to the way the tax system works. This includes aspects such as transforming tax administration. This change would make the process effective, efficient and accurate.

Benefits of MTD compliance:

Even though it’s government mandated, digitization will have a positive impact on your business. Up-front investment may be required to set up the necessary digital infrastructure. Your business can expect to see the following benefits:

  • Higher visibility: Digitization gives both the HMRC and your business more visibility on your business’ accounts.
  • Timely filing: Digitizing tax filing makes the information more accurate, timely and clear. This immediately saves you from penalties caused by misinformation or delays.
  • Reduction in repetitive tasks: Instead of maintaining a manual process digitization lets you and your team focus on other tasks that need their attention. This gives them more time and opportunities to be better performers.
  • Error-free: Having a clear view of your tax position makes it possible for you to plan future tax obligations at minimum cost and minimum disruption to the company.
  • Efficiency with sustainability: Keeping annual tax records consumes a lot of unnecessary paper. In addition to saving space, moving to a digital repository seems to be a more sustainable and viable option.

Constants under MTD:

The actual tax process and the rates remain constant. The only difference being, the way businesses report them. Some of the other variables which remain constant are:

  • There are no adjustments on the VAT reporting dates.
  • Any current exemptions for electronic submissions will also apply to MTD.
  • There are no additional provisions/charges/documentation requirements.
  • There is no other additional VAT information required.

VAT-registered businesses with a taxable turnover above the VAT threshold (£85,000) are required to use the Making Tax Digital service. This is essential to keep digital records. Additionally, businesses can use the software to submit their VAT returns from 1 April 2019.

Does this apply to your business?

Over 96% of businesses affected by MTD need to start following the rules beginning on or after 1 April 2019. Around 3.5% of businesses, with complex requirements, can wait until the 1st of October 2019 before they start following the rules. You will be notified by HMRC if you fall within this category.

The digitization of tax records will become compulsory to all businesses by 2020. Until then, the roll-out is planned in stages based on the type of business and the amount of revenue.

If you are a business owner, or a self-employed individual your date of compliance would be decided by the VAT threshold as mentioned below:

1st April 2019 – Over the VAT threshold of £85k

1st April 2020 – In the range of the VAT threshold of £10k- £85k

Note:

You do not need to sign up for Making Tax Digital or apply for an exemption if either:

  • You’re already exempt from filing VAT Returns online
  • Your taxable turnover is below the VAT registration threshold of £10,000

This is how your tax process is expected to work under MTD:

  • The software preserves and maintains the records specified in the regulations.
  • The software automatically calculates and prepares VAT Returns using the information maintained in the digital records.
  • The software will digitally communicate with HMRC via the Application Programming Interface (API) platform.
  • The software will collate and prepare your returns for you. You will then be able to access information on your returns.
  • The software will ask you to declare that the information provided is correct.
  • Once validated, the software will ask you for consent to submit it to HMRC.
  • Finally, you will receive a confirmation through your software that it has been received.

Simply put, to comply with MTD, your business needs to:

  • Maintain accounting records digitally via a software or spreadsheet. Maintaining paper records will cease to meet the legal requirements in tax legislation.
  • Submit your VAT returns to HMRC using a functional compatible software product that can access HMRC’s API (Application Program interface) platform.

The MTD Compliance Checklist For Businesses

Here’s a list of things you must keep in mind to make your business MTD-ready:

  • Your process should be 100% digital
  • You should have a repository of financial records for a period of up to 6 years
  • You should generate and share your digital VAT returns with HMRC
  • You should collate all relevant financial information on a single platform
  • You should receive data from HMRC digitally

How to make your tax process 100% digital?

Make your tax process digital by the below mentioned methods, depending on your existing accounting process:

  • Accounting Software: If you are already using an accounting software, you may need an upgrade. You can obtain advice and support from your existing provider, but you are advised to go through the checklist to ensure compliance.
  • Spreadsheets: If you currently use only spreadsheets, you can either switch to a software entirely or use a bridging software. Bridging software enable businesses that use spreadsheets or pre-MTD software for accounting records to continue to do so under the new MTD rules.
  • Paper: If you currently maintain records on paper, your processes need an overall upgrade.You will need to acquire and use the appropriate software to streamline your processes.

What happens if your business is not MTD-ready?

Her Majesty’s Revenue and Customs (HMRC) are aware that these changes might be difficult for businesses to adopt. To ease the adoption process,  they have proposed a soft-landing period of at least 12 months, with no penalties. In this period, businesses are allowed to update their processes. Additionally, during this period, it is acceptable for data to be transferred between software and spreadsheets manually; although the final submission will still have to be made digitally using an API enabled software.

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