Yesterday it was announced that HMRC are to postpone the requirement for VAT registered businesses to digitally link their VAT return processes, from data source to VAT return until 1 April 2021, due to the Coronavirus.

Making Tax Digital (‘MTD’) is an HMRC initiative attempting to transform the UK tax system, with more regular and detailed submissions of information and payments of tax to HMRC electronically.

Whilst it has been delayed several times, it aims to make tax administration more effective, efficient, and easier for taxpayers through implementing a digital tax system by 2020, whilst also reducing HMRC’s overheads for managing tax affairs.

The first wave is underway, with VAT registered businesses, with a turnover over £85,000 (‘the threshold’) undergoing the change. Put simply, these businesses need to be submitting their VAT returns either through compliant software, such as Xero, Quick Books, Sage or a bridging software. If the business is VAT registered but turnover is beneath the limit, they can opt-out of MTD.

Digital Tax *Delayed*

The next phase of the Making Tax Digital requirements was to be the ‘Digital Journey’, so as to remove any manual intervention taking place in the data prior to submission. This was due to be implemented between 1 April 2020 and 1 October 2020. However, this has now been delayed until 1 April 2021. What this means is that businesses covered here have until their first VAT return period starting on or after 1 April 2021 to put digital links in place.

HMRC acknowledged that not all businesses would have the time or resources to get MTD compliant immediately. As a result they allowed a ‘soft landing’ period, where penalties were not issued for non-compliance for the first year. This essentially increases the length of the soft landing period for these businesses, which is sensible in the current climate.

Whilst we welcome this delay as it gives businesses more time to adjust to these new requirements, at this stage, it is only a postponement and given the current climate, this will come round very quickly, so doesn’t give you much breathing space.

Steps to Digital Tax Compliance

Are you Making Tax Digital compliant? If not, we recommend that you get onto a compliant software at your earliest convenience. For example, we work most with Xero, QuickBooks and Sage, but also use FreeAgent and Wave, to name but a few. The easiest time to switch is at the beginning of a new accounting period, or the start of a new VAT quarter.

Aside from the requirement to use such software, there are also a lot of potential benefits from using it, which we highlight in this blog. They include:

• Less chance of human error as less manual entry;
• Much more time efficient, especially with bank feeds;
• Business Reports to enable you to make sound business decisions based on better information (rather than data);
• Automation of processes so for example you know at the click of a button who owes you what; and
• The information you need 24/7 365 days a year, all you need is an internet connection if it is cloud-based.

Making Tax Digital (‘MDT’) Next Steps

MTD continues to create opportunities and cause problems for VAT-registered businesses whose threshold exceeds £85,000. It is a question of ‘when’ rather than ‘if’ this will be rolled out on other taxes. The next three groups likely to be impacted will be:
• VAT-registered businesses with turnover less than £85,000;
• Corporation Tax; or
• Income Tax.

However, as none of these have been consulted on yet, it is likely they will not take place before 2021 at the earliest. However, in our current political climate, anything is possible. One thing is for sure, we will keep you up to date with all the latest news and timelines here.

Black and White Accounting

You might be looking to make a switch from your current software, make the most out of your existing software, or be completely new to this; whatever stage you are at, we are here to help. We can set you up and train you ready to go, or we can do it all for you, depending what is best for you and this can evolve over time as your business develops. You let us know your preferred way to work and we will deliver this for you.

Email us, complete the ‘Got a Question’ form on the right hand side, or call us today on 0800 140 4644. We look forward to talking further with you.