2019: the year VAT goes digital
Next April will see a major change in the way that businesses have to file VAT. It’s time to get prepared, says NEIL MOON of accountancy firm Page Kirk.
Background
In 2015, the UK Government announced an initiative to digitise tax in the UK. HMRC's ambition is to become one of the most digitally advanced tax administrations in the world. The four foundations to Making Tax Digital (MTD) are; better use of information, tax in real time, a single financial account, interacting digitally with tax payers.
MTD for VAT
MTD for VAT will require businesses with turnover above the VAT threshold (currently £85,000) and registered for VAT to keep digital records, and file VAT returns using MTD compliant software from April 2019.
MTD will apply to other taxes from April 2020.
Businesses that are run by a practising member of a religious society or order whose beliefs are incompatible with using electronic communications will be exempt from using MTD for VAT. Similarly, a business to which an insolvency procedure has been applied will be exempt from MTD, alongside individuals who may be exempt on grounds of age, disability or remoteness of location
New Legislation
The Value Added Tax (Amendment) Regulations 2018 outline the requirements for MTD for VAT. The legislation stipulates that information which is required for the VAT return must be kept in digital form within 'functional compatible software' i.e. accounting software and applications and that the transfer of data to HMRC from the compulsory digital records must be carried out digitally. For example, for each VATable supply made by the business it must digitally record the time of supply, value of the supply and the rate of VAT charged.
How to get your business ready – A four step-plan
Step 1. Determine whether you're impacted by the change. If your turnover is above £85,000 and your business is registered for VAT, you will be affected unless one of the exemptions mentioned above applies.
If you make taxable supplies, but are not registered for VAT because your supplies do not exceed the registration threshold, you will need to monitor your turnover carefully.
Step 2. Review your software. If you are already using MTD compliant software, you are ready for MTD. However, lots of businesses will be using old versions of desktop software or spreadsheets that will not be MTD compliant. If this applies to you, you will need to establish the most practical time for your business to make the software switch, and outline the processes you may need to change.
Step 3. Review your VAT process. From April, businesses will not be able to file VAT returns via the Government Gateway. If you are currently filing your VAT returns in this way, you will need to review this process. From April, VAT returns must be filed using 'functional compatible software'.
Step 4. Be an early adopter and ask for help. The earlier you get started the more likely you are to be ready by April. Ask for help from your accountant or software provider.
MTD represents a fundamental change in the way businesses keep their records, and with less than a year until MTD for VAT is implemented, now is the time to make sure you are ready for the change.
If you would like to find out more about this specific issue, speak to one of our tax specialists by calling 0115 955 5500 or email enquires@pagekirk.co.uk.