HMRC has published more information on their landmark making tax digital scheme in order to help more businesses and agents understand what is required of them before and after the deadline. This is all in the run up to the mandatory launch of the scheme in April 2019. The new information includes a HMRC VAT notice, a list of software developers that they are working with and a communications pack.
It is hoped that these three things will add further clarity to anyone who was looking for it. The Making Tax Digital (MTD) scheme outlines plans that any businesses registered for VAT with a taxable turnover above the £85,000 threshold will need to keep their VAT records digitally from next year. Returns will need to be completed using MTD compatible software.
The first part of the new information is a VAT notice which provides information to customers and adds amendments to the VAT regulations. It also includes guidance on the digital record keeping and return requirements.
These guidelines include information about who needs to follow the new MTD regulations and from what point. You can learn what digital records you need to keep and the requirements for being able to enjoy certain relaxations in these guidelines. These include where a mixed rate supply is made or when a third party agent makes or receives supplies on behalf of the business.
You can also discover more about how you must use software to file your digital records, including more information on which programs are suitable and how they can be digitally linked. There will also be some illustrated examples to show you how all of this will work in practice once you have adopted the new rules.
The VAT notice says that if your taxable turnover is above the VAT threshold then you will need to follow the MTD rules. If you drop below the threshold you will need to remain in the MTD scheme until you deregister. There are a few exemptions, which include businesses entirely run by practising members of a religious society with incompatible beliefs or if it is not practical for you to do so.
Your digital record keeping must feature digital links between software programmes and applications. You can’t enter the data into a spreadsheet and then manually copy this into different parts of the software. HMRC accepts that digital links include spreadsheets with linked cells, emailing a spreadsheet to an agent, or transferring digital records onto portable devices. In other words, there can be no manual involvement in re-entering data.
HMRC has worked closely with software providers to help them bring a wide range of MTD products to the market. You can find a full list of these providers published on the HMRC website. These are all software developers who have demonstrated prototype products that are ready for market.
In order to support partnerships and working arrangements with stakeholders HMRC have also produced a communications pack which contains key information for their clients or customers. The aim of the pack is to provide materials and information that can be used in any external communication you may make. This includes letters, emails, articles, presentations and social media. So, if your customers have any questions about how the new regulations may or may not affect them. You will be able to use the resources in the pack to answer any questions or concerns they may have.
In the pack, HMRC define what kinds of businesses meet then new criteria for the MTD regulations. They also go on to explain some of the background to the MTD process and why digitalisation is beneficial to everyone involved. With millions of businesses already using digital software to pay bills, staff, and more, it makes sense to streamline the tax paying process in the same way. The ambition for HMRC is to become one of the most advanced digital tax systems in the world and these new changes are the first steps of this process.
From now on, tax aims to be more efficient, more effective and more accurate. The move to digital will also eliminate the need for a paper-based process which will be far more environmentally friendly.
HMRC also understands that many businesses use an agent and it will explain how this will continue to work in an uninterrupted way. You can still authorise HMRC to receive and send data to and from an agent. Once authorised to do so, an agent can sign up your business to the MTD service and use software to communicate with HMRC. Your agent will need to keep records on your behalf and you can have more than one agent performing different MTD operations.
The latest news also contained some further information. This included that VAT updates will be made available for MTD at some point in the future. This will allow your business to provide voluntarily additional VAT information to HMRC outside of your usual tax return.
The aim of the MTD project is to make tax more streamlined and to use the power of digital software to reduce the amount of time and effort you need to file your return. Any large scale change like this can involve a huge amount of confusion as everyone comes to terms with the new ways of working. However, by using an agent or third party accounting service you can take a lot of the strain out of the changeover. Small businesses, in particular, can’t afford to take the time to fully get to grips with the new rules, and it is often more efficient to work with an agent that can do this for you.
In terms of how the way agents are going to work with the new services, very little has changed. Permission is still required but once granted, an agent can take care of almost every aspect of the new Making Tax Digital regulations.
We can help
At Together Accounting, we’re making sure that our clients are ready for the changes that MTD will bring so they’re free to concentrate on running their businesses. We’re also happy to talk to any businesses that need guidance on how to prepare your business for the scheme or we can take care of it for you so get in touch for more information.
From XERO to QuickBooks Online and Receipt Bank to Sage, the tech and systems we use mean we’re in a prime position to help businesses take their accounts online and make the most of the many benefits of digital accounting.