10 things every rural business should know about Making Tax Digital

18 Oct 2018

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The next major step towards a totally digital tax system for business happens in less than 200 days, so it’s definitely time to gear up for it,” says Richard Cartwright, a partner at and member of the firm’s Landed Estates Group. This follows the launch of the Making VAT Digital pilot earlier this week by HMRC, inviting more than half a million businesses to try it.

Making VAT Digital (MVD) for all businesses with a taxable turnover above the VAT threshold (currently £85,000) comes into force from 1 April 2019, meaning they will have to keep digital records for VAT purposes. Richard Cartwright commented:

“With Brexit in March and MVD coming just days later, we are facing up to a spring of change and challenge so we have prepared a list of 10 top tips for those heading into the new digital system.”

  1. If you report quarterly for VAT now online will that suffice?
    No. Even if you submit your quarterly VAT return digitally now that isn’t enough to be compliant. Manual records will no longer be sufficient, so records must be kept digitally and quarterly returns must be filed directly from them via software. Also, digital records are required to capture more information than currently being recorded manually.
  2. Is a software-generated spreadsheet considered a digital record for MVD?
    No, unless it is ‘API (application programme interface) enabled’ so that it can talk directly to HMRC’s system. If it isn’t then bridging software is required to lift records from the spreadsheet.
  3. How do I know if the software I am using is HMRC compliant?
    HMRC is working with more than 150 software companies to be ready and has published a list of those companies that have products that support their requirements online here.
  4. Does HMRC provide free software?
    No, and there is also no requirement for software companies to provide software that has VAT digital functionality, although some are making free products available now for charities and small businesses.
  5. Does MVD start for everyone on the same date?
    No. The start date depends on the timing of your own VAT reporting timetable. The three-month period with the first requirement for digital VAT reporting will be the second quarter 2019, from April to the end of June, with the first digital filing and payment due in early August 2019. Businesses with a VAT return period starting before April 2019 but including April 2019 will not need to comply until the next VAT return period so, for example, a three-month period running from 1 March to 31 May 2019 will not need to be reported digitally, but the next period (1 June to 31 August) will be.
  6. What if I don’t meet the deadlines?
    HMRC is introducing a new system of penalties with a move towards penalty points. This will start from 1 April 2020, but before that the existing system will continue to apply.
  7. Are there exemptions?
    Exemptions will be made for those for whom using electronic communications or records is not reasonably practicable, for example because of age, disability, or remoteness of location. These will reflect the exemption rules currently in place for VAT online filing. If you think an exemption might apply to you then you should contact HMRC’s VAT helpline as soon as possible.
  8. How far away is digitalisation for all taxes?
    HMRC is moving the total tax system gradually towards full digitalisation, for example personal tax accounts (PTAs) are currently being set up and a similar system for business with business tax accounts (BTAs), which gives single-portal access for filing information on other aspects, including payroll taxes and corporation tax as well as VAT. HMRC has advised that April 2020 is the earliest that further digital reporting will be introduced for other taxes.
  9. Can I get on the MTD system early?
    Certain businesses can opt into the trial for Making Tax Digital, one advantage being these will have the chance to familiarise themselves with the system before it becomes compulsory.
  10. Can my tax agent help?
    Yes, because it is important that their software is compatible with yours, and they should be able to assist you through the process, not just for Making VAT Digital but for Making Tax Digital as other aspects of the tax system go digital from April 2020.