By Tim Woodgates
Tax Associate
Moore Stephens
NEW legislation being introduced by HMRC in April 2019 to create a ‘transformed tax system’ means that VAT registered businesses with turnover above the VAT threshold (currently £85,000) will have to keep their records digitally for VAT purposes and submit their VAT return information to HMRC through Making Tax Digital compatible software.
This means that businesses within the scope of MTD for VAT will have to use accounting software to record all VAT invoices and receipts and will no longer be able to submit their VAT return manually via the HMRC Gateway – submissions will have to be made via a compatible digital software package.
At Moore Stephens, we recommend that all affected businesses and organisations take action now to avoid being caught out by the new legislation.
What you need to do next
Depending on your current situation, there are a number of steps you need to take in readiness for Making Tax Digital.
VAT registered organisations with turnover above the VAT threshold currently keeping manual or spreadsheet records should consider investing in a compatible accounting software package such as Sage Business Cloud, Xero or QuickBooks.
As well as ensuring you’re compliant with the new legislation, there are significant advantages to using an online accounting package. Once the initial set up is complete, you may find preparing your accounts much easier, and that you have far less paperwork to keep on top of.
If you decide to purchase software, we recommend that you make the change at the beginning of your financial year as this makes the process of switching things over much simpler. Moore Stephens can help you understand which package is right for you, and we can help with installation and training too if needed.
If digital technology really isn’t your thing, you can instead outsource your bookkeeping to a third party such as Moore Stephens who can keep your records and file your VAT returns on your behalf. Outsourcing your record keeping will ensure your VAT returns are submitted correctly and on time and are fully compliant with all HMRC regulations, leaving you free to focus on running your business.
Already using accounting software?
The good news is that VAT registered organisations already using a software package may already be fully or partially compliant. However, older versions of some desktop software packages may not provide the functionality to directly submit your VAT return to HMRC, so you may need to upgrade your software package. (Sage 50 accounts users for example will need to upgrade to version 25).
We recommend you check with your current software provider to ensure that the package you are using is compatible with Making Tax Digital for VAT (i.e. it provides the functionality for you to submit your VAT return directly to HMRC).
If you aren’t already doing so, it’s a good idea to start to submit your VAT return directly through your accounting software as soon as is practical. It’s simpler and more efficient, and means you’ll be prepared for Making Tax Digital for VAT when the new legislation comes into effect in April 2019.
Under the VAT threshold?
Businesses and organisations with turnover below the VAT threshold are exempt from the legislation, even if they are VAT registered. However, HMRC have stated their intention to become a modern, digital service, and we anticipate that MTD will be expanded to include Income Tax and Corporation Tax returns in future (although not before 2020 at the earliest.)
Therefore, as part of your future planning, you should consider moving to an accounting software package if you are not using one already.
You can find out more about Making Tax Digital for VAT at www.moorestephens.co.uk/eastmidlands or call Tax Associate Tim Woodgates on 01536 461900.