Making Tax Digital For Vat - Are You Ready?

Of all the days to release the Making Tax Digital for Business (MTDfB) update, HMRC chose Friday 13th (July). But it wasn't the horror show you might expect, the release has narrowed the level of uncertainty facing businesses in the run up to April 2019.

Tait Walker’s new publication on Making Tax Digital for VAT simplifies some of the language and gives examples of businesses you may be able to relate to.

The Background

In a digital world, MTDfB is the government’s vision to have one of the most digitally advanced tax systems, to improve efficiency and to reduce error. By forcing businesses to store and share information digitally, HMRC will have quicker access to data and clear audit trails from source documents to filed returns.

The first step in the MTDfB process focuses on the way VAT return information is stored, processed and communicated and will impact VAT registered business with a taxable turnover greater than £85,000.

In general the requirements will place different pressures on businesses depending on how complex their VAT position is. For simple VAT structures there are software solutions available that will quickly make you compliant. For more complex VAT profiles and group companies life may not be so straight forward.

Cutting through the jargon

There are phrases in the guidance that you may not be familiar with so here is our summary of the important ones:

FUNCTIONAL COMPATIBLE SOFTWARE

This is a software program, or set of programs, that can record and preserve digital records and communicate directly with HMRC. Packages like Sage (v 24 or later), Xero and Quickbooks for example, are classed as functional compatible software. If you are already using them to file your VAT return direct to HMRC then you are MTDfB compliant as long as you adhere to the rules of processing and retaining data.

DIGITAL RECORDS

These are software programs that are capable of recording and preserving digital information but do not have all the attributes of functional compatible software like communicating directly to HMRC. For many businesses this may be a combination of bespoke accounting ledgers, legacy accounting systems and spreadsheets. To be MTDfB compliant, the information stored in these digital records needs to be shared using Digital Links…

DIGITAL LINKS

These are the means to transfer information electronically between software programs, applications or products without any manual influence. The days of ‘cut and paste’ are no longer allowed in the new MTD landscape. Digital links can be anything from an excel formula to complex API’s…

There are a few more you should be aware of such as API and bridging software for a start…Head over to www.taitwalker.co.uk and read the full publication to help you get MTD ready.

So what do you need to do now?

First of all, don’t panic and start by working out whether your curent systems comply with the new requirements. Do you have digital records at all? Have you got non digital legacy accounting systems? Do you have complex group reporting? Is the software version you use compliant? Start by making a list and working out what action you need to take ahead of April 2019.

Businesses will take a range of approaches to these changes, some early adopters, some gradual changers, a few last-minute panics and some will remain in denial…although beware of the fines if you choose this one!

From our experience of regulatory changes, the early adopters faced the least disruption. Ensure a thorough solution is in place and its business as usual when the effective date arrives. We would urge as many of you as possible to take this approach to MTDfB.