When the digitisation of the tax system was announced by George Osborne in April 2015 it inferred the end of the self assessment process as we know it. Since then, Making Tax Digital (MTD), has been delayed, removed, and come back again carrying myths of uncertainty and speculation. This short blog aims to provide you with the information you need to know to help you take action at the appropriate time.
Firstly let’s clear up when MTD is coming into force. HMRC have made it very clear that the first roll-out of MTD will take place on 1st April 2019. But what happens on this date and who does it affect? At this stage, any business with a VATable turnover in excess of £85,000 will need comply with the MTD requirements from first day of the VAT period that begins after 1st April 2019. Now, you will notice that HMRC are focusing on VAT periods and not the financial year. This will result in the business having to adopt an MTD compliant accounting solution part way through a financial year. This is something business owners should be very cautious about. The accounting bodies are campaigning for this rule to change such that the MTD reporting comes into force from the start of the new financial year following the 1st April 2019. Right now, HMRC are standing by their guns!
To overcome the problems associated with a switch of accounting system part way through an accounting period, a business may choose to adopt MTD compliant accounting software at the beginning of the financial year in which MTD will come into force. If a business has a year end of 31st July and a VAT period that begins on 1st April 2019, that business may want to start using MTD compliant accounting software from as early as 1st August 2018. HMRC are not saying that this is the mandated date, but it would overcome the need to switch systems on the 1st April 2019 when MTD requirements are mandated for those businesses.
For businesses that have voluntarily registered for VAT i.e. the turnover is below £85,000, those business won’t have to comply with the MTD regime on the 1st April 2019. However, the business will need to monitor their turnover levels on a monthly basis to ensure the business complies from the month where the threshold is exceeded. Again, this may result in a change of accounting system part way through the financial year.
All other businesses will need to commence the MTD processes from 1st April 2020.
So what software is HMRC directing businesses towards. Firstly, HMRC are not providing a free software solution for MTD reporting and expect businesses to subscribe to commercial accounting tools. Businesses can also develop their own MTD reporting solutions but must register with HMRC as a developer to get access to the appropriate APIs.
It’s expected that the large cloud accounting vendors will have developed their MTD compliant processes ahead of the pilot launch in April 2018. Other vendors will be sure to have their solutions in place by 1st April 2019.
At Making Tax Digital Solutions we aim to support businesses and their accountants prepare for this digital transformation. The key to getting this right is to plan ahead. Take a look at your turnover forecasts for the year ahead and decide on when you’re going to introduce a new accounting solution if your current solution is not MTD compliant. If you have any questions about MTD in general or want to find out how we can help you, just drop us an email with the subject “MTD Help” to [email protected]. We will aim to provide you with a comprehensive answer to your questions within 24 hours.
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