By Thomas Julier, Accountant at Hive Business
Making Tax digital (MTD) first came onto the scene in 2015 with the intention of reducing the complexity of the UK tax system, making it more efficient and effective.
Originally proposed to come into effect in early April 2018, it is now expected to be phased in from April 2019 and will only apply to VAT reporting initially, extending to cover other taxes in April 2020 at the earliest.
However, this is still subject to sufficient testing and will only be the case if MTD process “has been shown to work”.
So, how will your business be affected?
If your business is VAT registered and has a turnover above £85,000 you will be required to keep digital records and submit your VAT return via MTD compatible software to HMRC.
Digital records will need to be kept for the following information:
- Business name, VAT registration number, and address of your principle place of business.
- The VAT account showing the audit trail between primary records and the VAT return.
- Details about supplies made and received.
- Digital records will need to be kept for up to six years.
A number of businesses will be exempt from MTD for VAT.
A few of the main reasons for exemption are as follows:
- Your business is insolvent.
- Your business is unable to use electronic communications because of religious beliefs.
- Your business is unable to submit returns electronically due to remoteness of location, disability or age.
On the other hand, if you are not required to begin keeping digital records from April 2019 but you would like to, you are able to participate on a voluntary basis. In doing so businesses will be able to submit VAT data outside of the VAT return cycle. This can be of benefit if a business would like to notify HMRC of a change in circumstances.
What financial effects will this have?
Unfortunately, it is likely that businesses will face both one-off-costs and additional on-going costs in relation to MTD.
Some of the likely one-off-costs will be:
- Purchasing new or upgrading existing hardware.
- Agent or accountancy costs to support the MTD move.
- Training staff in the new process.
- Time spent implementing the required changes.
Some of the likely ongoing cost will be:
- An increase in current software costs
- Costs relating to the bridging software to support MTD compatibility for spreadsheets.
If you would like to find out more about our business advisory services, please get in touch on 01872 300232 or email [email protected].