Making Tax Digital – The Journey Continues15th October 2018
HMRC’s vision to digitalise the UK tax system is well underway. The transformation will start with Making Tax Digital (MTD) for VAT from April 2019.
Since MTD’s launch by the then-chancellor George Osborne, way back in 2015, the order of the proposed roll out of MTD has changed. It is, however, still viewed as a key part of the government’s plans to make it easier for individuals and businesses to engage with their affairs, as well as transforming HMRC into one the most digitally advanced tax administrations in the world.
One of the biggest challenges revolves around the move from annual to quarterly reporting, which will start with VAT before income tax follows suit.
After MTD for VAT has been implemented, MTD for income tax (for the self-employed and those with income from property) and MTD for corporation tax are expected to follow, but not before April 2020 at the earliest.
From April 2019 all VAT registered businesses and organisations with taxable turnover above the VAT threshold of £85,000 will be required to:
- Maintain their accounting records digitally in a software product or spreadsheet (Maintaining paper records will cease to meet the legal requirements in tax legislation).
- Submit their VAT returns to HMRC using a functional compatible software product that can access HMRC’s API (Application Program Interfaces) platform.
As advances in technology are harnessed by software developers, the future of accountancy will be less about MTD and more about accountants acting as consultants through advising their clients about their business activities in real-time.
If someone needs new software and their accounting year straddles April 2019, they should have possibly already migrated. However, HMRC has not appraised them of this and if they leave it until the New Year, it may well be too late.
Some traders do not employ an accountant which leaves quite a number potentially still in the dark. This could prove to be a major issue for HMRC.
It has been suggested that HMRC is planning to write to all the VAT registered businesses who will have to enter MTD in 2019. Those letters are expected to be sent in September 2018
As MTD is inherently reliant on technology, those on cloud solutions are at a distinct advantage but even this cannot be taken for granted. It would still be wise for businesses to still check that they will be OK, especially if you use old or bespoke software.
Software providers are expected to provide the technology, but they don’t have to make sure every client is OK. Companies like Sage and QuickBooks are in a similar situation for some of their clients on older editions of their desktop software and not on subscription.
As Intuit’s Alex Davis explained: “I spoke with a business owner friend last week and asked if his accountant has told him about MTD. He said no. When I told him about what is happening his first response was ‘time to find a new accountant’. The customer will go with who offers them the best advice.”
And Xero’s Glen Foster echoed these sentiments: “I’d say accountants have an obligation to inform their clients and advise on a solution. That doesn’t mean every client will take the advice. Having said that, every firm has the right to not, but I’m sure most people would want to be a client of the firm that did.”
So, have you spoken about MTD with your accountant? If not, why not give us a call?