The HMRC have a stated ambition to become ‘one of the most digitally advanced tax administrations in the world’. In doing so, they have launched the first phase of their Making Tax Digital scheme, known as MTD. This is set to affect every business (whether that’s a partnership, company or sole trader) in the UK earning over a certain amount each year.
The MTD scheme starts its roll out in 2019 with its scope expanding year on year. And with only a few months to go until the scheme begins, there are severe doubts about whether enough has been done to inform businesses about what is expected of them. If you have a business to which the rules apply, it’s up to you to make sure that you’re ready to work with the new system.
By April 2020, all businesses and taxpayers who use the self-assessment system will be required to adhere to the new MTD rules. However, the House of Lords is currently asking for the scheme to be delayed by a year. This is due to the fact that figures such as 40% of small businesses not having heard of the scheme are ringing alarm bells. It is also true that the scheme seems to not have considered that many rural businesses do not have the digital infrastructure to make it work in all cases.
Rural businesses that don’t rely on computers, software and IT skills, but spend time in the fields harvesting, looking after animals or doing other work, look set to struggle with some of the details of the MTD scheme.
So, just what can rural businesses do about MTD and are there any benefits to embracing the scheme? First, let’s take a closer look at exactly who the MTD scheme will affect.
In its first phase, the MTD scheme will include all VAT-registered businesses with a taxable turnover of more than £85,000. If this applies to you, then you will need to keep detailed VAT records and accounts and digitally file your tax returns using appropriate software. Compliance is mandatory once you have gone over the VAT threshold, even if you drop below it again at any point. The MTD scheme will start with the first VAT period after 1 April 2019.
For businesses that still maintain manual records, this is going to be a huge shake up and will involve transferring all accounts to suitable digital software. Even businesses using older forms of software will need to ensure that their record keeping is compatible. There is a list of compatible software on the HMRC website.
Could MTD be good for business?
If you’re a rural business that doesn’t use any kind of digital record keeping and does things in a traditional way, then there’s little doubt that MTD is going to involve a big change in operations. Investing in and learning how to use digital record-keeping software is going to be a big change for some businesses. However, there are a number of key benefits that this could bring and MTD could be the kickstart you need to bring your business into the modern world.
Try not to look at MTD as a big problem, but rather as an opportunity to see what your business might need. As well as the basic accounting software packages that keep your records accurate, you can also use add-ons to improve other areas of your business. Stock application add-ons can automate your inventory process and you could have access to a huge amount of data that was previously inaccessible.
You can store, send and record invoices, meaning no more hours spent at the end of every month totting up your accounts. All your receipts and invoices will be stored online and accounts and cash flow updated in real time. It also means that the potential for errors in accounting is significantly reduced and you always have a clear picture of how the business is doing.
However, the National Farmers Union will also be pushing for a delay as they feel that the new way of accounting is going to involve a lot of work for some rural businesses. And the poor infrastructure in place in many farm and rural environments, especially the slow internet speed, could prove to be problematic. The NFU said: ‘It is suggested by the government that Making Tax Digital proposals will bring business tax into the digital age. However, for many of our members the digital age has yet to be delivered to them by the government.’
They added: ‘The NFU believes that a delay in implementation, combined with substantive pilot tests across a wide range of businesses, is required before MTD for VAT becomes mandatory.’ They went on to describe how ‘given the relatively complex nature of farm accounting and taxation it might also not be possible to get the tailored software solutions required within the proposed timescales.’
However, there were many claiming that these calls were too pessimistic and that many farmers and rural businesses could benefit from the move.
How to prepare
If you’re a rural business and need to get up to speed with the new VAT requirements, then there are some things that you can do. If you keep manual books, then you need to contact an accountant to help you make the transition or employ someone on the staff to help you make the changes you need. You need to make sure that you have a good internet connection or arrange to do your accounts somewhere where that is available.
You may require new software and it’s worth taking the time and advice to get the right one for your business. Don’t make a hasty decision – ensure that you’re getting suitable software that can grow with your business, with the potential for add-ons to improve other areas.