In the 2015 budget, the Chancellor announced "the end of the tax return"! Further announcements set out a timetable for digitalising income tax, Corporation Tax and VAT returns. Following consultation, the implementation for income tax and corporation tax has been delayed. However Making Tax Digital ("MTD") for VAT went ahead for VAT registered businesses above £85k turnover in April 2019 and for all VAT registered businesses from April 2022.
What does it mean?
All taxpayers who are VAT registered will no longer be able to type the figures for their VAT returns directly onto the template within their HM Revenue & Customs ("HMRC") online filing account. Instead taxpayers will only be able to submit the figures from accounting software or specially enabled spreadsheets. This includes overseas businesses, charities, local authorities, academy schools and Government Departments, as well as businesses.
Only taxpayers that are adverse to technology on moral or religious grounds, the elderly or infirm or those that cannot access digital technology (e.g. no internet access, national firewalls etc.) will be exempt from MTD filing.
In addition to filing the VAT return figures, there are now extra record keeping requirements (e.g. a new digital VAT account) and data transferred between sources will need to be done with digital links (e.g. from accounting software to spreadsheet and vice versa or from third party sources).
Further down the line, it is likely that HMRC will mandate the provision of increasing amounts of information, up to and including raw source data, although this may be a few years away.
What do I need to do?
If you are currently using one of the accounting software packages, you should check what the provider is doing to upgrade to the MTD compatible software and what they will be charging for this. It may be time to consider changing providers or outsourcing the preparation of the VAT returns.
If you have bespoke or adapted accounting software, you may need the services of an in house or outsourced software consultant to upgrade your software because it may not be an upgrade that the original provider or developer is expecting to do. This is particularly important if you rely on software provided from developers overseas or from other overseas group companies.
Those taxpayers that have accounting software but need to export data to spreadsheets to make adjustments (e.g. partial exemption calculations, VAT group figure consolidation) and currently manually transfer these to the VAT return on the HMRC portal will also need to consider how this will be achieved digitally.
If you currently keep your records manually or on spreadsheets you will need to transfer these records to accounting software or to specially enabled spreadsheets as typing the figures onto HMRC's website will be withdrawn.
Whatever accounting method you use, now is a good time to look at your systems and identify the areas that could be an issue with MTD.
Hillier Hopkins has developed a full suite of tools and services to help clients with this transition to digital tax accounting. Take a look at our VAT controller bridging software as a solution to your MTD challenges.
Originally published 29 October, 2021
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
