Making Tax Digital is Here – Not Ready? Here’s What to Do Now

Categories: HMRC, Tax, VAT

At the beginning of April 2019, HMRC pressed the go live button on one of the biggest changes the UK tax system has ever seen.

In a move to bridge the gap in taxes collected in the UK, Making Tax Digital (MTD), has been designed to minimise tax evasion, as well as deal with issues such as accounting mistakes which are reported to account for a £33bn ‘tax gap’ (the difference between what the exchequer expected to receive and what was actually paid) in the year 2016-17.

By making all VAT-registered businesses in the UK submit their tax online, HMRC hopes to gain more control over payments and submissions and encourage UK businesses to ‘go digital’ and use software, not traditional spreadsheets and older accounting practices.

But this hasn’t happened without the odd hiccup…


Many UK businesses are still not ready for MTD

With just weeks to go before the deadline, research from the Chamber of Commerce suggested that nearly one in five businesses earning above the £85,000 VAT threshold still didn’t know about MTD.

Added to that was a concern that many businesses (some 38%) had incurred extra and new reoccurring costs to upgrade to software that complied with MTD.

There are over 200 platforms that are now MTD approved by HMRC, yet many VAT-registered businesses have been either slow to change or resisted the change that was forced upon them.


MTD is a big leap for some…

Research from cloud accounting firm Xero found that 32% of SMEs still rely on pen and paper accounting and many are simply happier or more comfortable using traditional methods. This is one area that HMRC wants to improve, as the mistakes and non-transparency is a risk too far for them.

For those who still use traditional methods of accounting, the leap to the cloud and online accounting is a big one. When you consider the extra tools, internet, training, and skills you need to get your business accounts in the cloud from pen and paper, it’s little wonder that some haven’t made many in-roads towards MTD.

That said, the move to cloud accounting can be done seamlessly with support from a good accountant and many are working with clients (as we are) to get them set up online and move their records securely and correctly to one of the many MTD approved software solutions. They also need to be comfortable using their chosen software, and they need to experience it and learn their way around it.


Some VAT-registered businesses are exempt

In July 2018 (rather late considering the deadline was less than a year away) VAT Notice 700/22 was published and accountants and businesses rushed to see what exactly they needed to do.

What is it?

VAT Notice 700/22 is a plain English record of exactly what needs to be done, by whom, by when, and in the article HMRC listed some exemptions for MTD.

Exemptions can be submitted on the grounds of:

  • Impracticality of using digital tools (because of “age, disability, remoteness of location, or for any other reason”).

However, there was a mistake in the article which wrongly suggested that any business that had ever gone over the £85,000 threshold would need to comply. This caused confusion around businesses who would have to join the scheme.

This in fact was wrong and it would only apply if this had happened in the 12 months immediately before the date of the turnover test (1st April 2018 to 31 March 2019).

So on 28 February 2019 with just over a month to go, a revised version of VAT Notice 700/22 was quietly released. It updated us with the exemptions:

“You’ll be exempt if it’s not practical for you to keep records digitally because… of your location – for example, if you cannot get internet access at your home or business premises and it’s not reasonable for you to get internet access at another location… [or because] of a disability – for example, if you cannot use a computer, tablet or smartphone for the frequency amount of time it takes to keep digital records for your business”. 


Software integration rule given a soft launch

So HMRC saw that this might be a step too far too soon for many businesses and integrating the new accounting software has been given exemptions. Under MTD, it’s a legal requirement that the “programmes you use for recording and processing financial information connect with each other fully, and purely digitally”.

Linking up your cloud accounting software to your other systems and of course HMRC’s portal is the aim of MTD to create a transparent, traceable, and more precise system that can link to your accounts, bank, and even store and manage your receipts, invoices and expenses online.

There’s now a year’s grace until March 31st 2020 for business to help them deal with linking their cloud accounting to other systems. This will give them time to implement and link their accounts and other financial systems digitally. This doesn’t affect the regulation that you now need to link your accounts and submit your VAT online with MTD-ready software.


Not MTD ready? Here’s what you need to do now

If you’re still not ready for MTD and your turnover is £85,000 or more then you need to get your skates on ready for your first VAT return filed after April 1st 2019.

Here’s what you need to do now:

  • Get signed up with MTD-ready software – there’s a lot of choice from the big names to ones you might prefer to use. On the HMRC’s website you’ll find a huge list of software options that you can use.
  • Enable the MTD features and link to HMRC – once signed up (or with your existing cloud accounting software) make sure that you’ve switched on the MTD capabilities so that you can submit your tax return through to the HMRC.
  • Register for MTD – you’ll also need to register your business for MTD with the HMRC, which will enable you to link your accounts system to the new MTD portal. You can register for MTD here.


Need more help?

Our current clients are now ready for MTD and complying with this new law. Even if you’re not VAT-registered you’ll need to eventually comply with this new initiative as HMRC work towards getting all businesses online and digital, so if you’re thinking about going digital do bear this in mind.

If you’re confused about the options or would like to talk things through with a person the good old-fashioned way, we can help.

We’ll get you set up with some MTD-ready software and transition your business online from wherever you are right now. Contact us today.