Making Tax Digital is a hot topic with expected changes coming in from April 2019. Here’s a bit more information on how it’ll affect you from our VAT head honcho, Damian Shirley.
Why is HMRC making these changes?
HMRC estimate that there’s currently a tax gap of £25bn. Of the £25bn, they estimate around £9bn relates to careless errors within people’s returns. And of the £9bn, £3.5bn was due to errors in VAT returns. So, it makes sense to do something different, right?
HMRC also want to be the “most digitally advanced tax administrator in the world”. And they believe these changes will help businesses get their taxes right and therefore reduce this tax gap. It’ll also encourage businesses to stay on top of their record keeping.
You might be invited to a Pilot scheme
Since Making Tax Digital was first mentioned by HMRC, the deadlines for income tax and corporation tax changes have been pushed back. However, the deadline for VAT – April 2019 – has remained. HMRC have confirmed that they won’t extend Making Tax Digital to other areas of tax before it’s working well in this area. Sensible.
HMRC are currently approaching businesses asking them to take part in their Pilot scheme before it goes live next year. They’re starting with simpler businesses and then moving to more complex ones.
Just in case you’re asked: It isn’t mandatory. But if you accept, HMRC have confirmed that your business won’t be subject to any additional scrutiny based on the information you submit.
How it’ll affect you
Anyone who is registered for VAT that has taxable income above the VAT threshold will be affected by these changes. It’s expected that by 2020, all VAT registered entities will fall under the regime.
Businesses who will fall within the regime from April 2019 will be required to file their VAT returns using VAT compliant software from the first quarter starting on or after 1 April 2019. So, those with a VAT quarter stating 1 May 2019 will get a little longer.
What do we mean by “VAT compliant software”?
Sadly, it won’t be as simple as recording everything on a spreadsheet and uploading this to HMRC. The portal as we know it, where you fill in the nine boxes, will disappear and you’ll register for a new digital account with HMRC where you’ll upload information.
Your software must be able to “talk digitally” with HMRC, and HMRC are currently working with common software providers such as Xero, Sage, Quickbooks and Nav. If you work for a company with a bespoke system, the onus will be on you to make sure HMRC recognise your system and that it’s compatible.
Make sure you have a recognised provider
HMRC need to approve each software provider – including bespoke system providers – prior to the April 2019 deadline. So, speak with your provider before this deadline. And if you’re not on a system that’s recognised, talk to us and we’ll look at this as soon as possible.
We’ll be sharing more details on Making Tax Digital soon, including the information you’ll need to submit, how you’ll do it and how HMRC will process your information. In the meantime, get in touch if you have any questions.