Making Tax Digital for VAT
What is MTD for VAT?
It is a change in the way UK VAT is reported to HMRC, replacing manual VAT filings with a digital process. Essentially, HMRC requires VAT returns to be filed directly from an organisation’s accounting records. However, not all organisations maintain records in a digital format that makes this possible. This is the first step towards enforcing digital record keeping.
Who is affected?
Organisations that are VAT-registered and have taxable turnover above the VAT threshold, currently £85,000, will need to comply. The changes will apply to all types of organisations, including companies, sole traders, partnerships, charities and landlords.
Even if your organisation falls below the threshold, we recommend you keep records in a digital format in case you do reach the threshold in the future. Trust us, it will save a lot of time.
‘Digitally excluded’ organisations, who already have an exemption from filing electronic VAT returns through the HMRC website, will be exempt from these new rules. Other exemptions include where digital filing is incompatible with religious beliefs or impractical due to age, disability or location.
When does MTD for VAT launch?
For most VAT-registered organisations, it means the first VAT return period starting after 1 April 2019. However, it is being introduced in stages and, for some, it will launch later.
For quarterly VAT filing, the start dates are:
|VAT period||MTD starts||First MTD for VAT filing deadline|
|1 April to 30 June||1 April 2019||7 August 2019|
|1 May to 31 July||1 May 2019||7 September 2019|
|1 June to 31 August||1 June 2019||7 October 2019|
Some organisations will have a six-month delay. To qualify, you must be one of the following: a trust, a not for profit organisation that is not set up as a company, a VAT division or group, a certain type of public body, an organisation based overseas or an organisation using annual accounting or making payments on account.
What do you need to do?
A lot of organisations will not be hugely affected if they already use a digital accounting system. If you keep your records in a digital format and file your VAT returns with HMRC using recognised software, changes will be minimal. If not, you will need to review your processes in order to comply with the MTD regime.
If you use an accountant or other agent to file your return, there is a new authorisation process to set up. It is best to check that this has been addressed.
What are digital records?
Digital records can range from a simple spreadsheet to a full-service accounting system and the best one for you will depend on what you do. Spreadsheets will need to be linked to HMRC through additional bridging software. Most off-the-shelf accounting systems are being updated, so that they will link directly to HMRC for filing VAT returns.
One of the main challenges will be how you record all your financial transactions digitally. Spreadsheets require manual input, which can be laborious and prone to data input errors. Processing data in accounting systems can be streamlined using scanning tools, direct bank feeds and linking straight to your customers and suppliers. This requires some initial time investment, but we have found the long-term benefit is that it can typically save you two days each month.
Using MTD-compatible software gives you access to real-time information, which connects to other operational software, for example till systems, HR software and CRM tools. The added bonus is that you can access your financial records wherever you are.
What software can you use?
HMRC has published a list of compatible software, which includes both accounting systems and bridging software packages. Desktop accounting software will either need to be upgraded or transitioned to a cloud platform. Cloud accounting software, such as Xero and QuickBooks Online, will have already been updated behind the scenes so no upgrade is required. However, it is best to check to be sure.
What do you need to do now?
Review your accounting systems to see if they are compliant. Even if they are, it is a good opportunity to see if there is a better way to manage and analyse your organisation’s finances.
Evaluate what alternatives exist, what the costs are and crucially what benefits and value you can obtain from changing the way you maintain your records. We have experts in many different types of software, covering accounting through to operational systems.
Plan how you can introduce any changes with minimal disruption, while ensuring you are compliant. This can be a small or large project, depending on how complex your organisation is, but we can provide a step-by-step plan to ensure that it is done efficiently and that nothing is overlooked.
Implement the changes by setting up new systems and processes. Provide each member of the team with necessary training to enable them to carry out their role. We can support you through all this, as you require. Our data migration specialists can get things up and running for you in no time.
Our most common approach is to assist clients with implementing their new systems, then hand over to their in-house team. If you do not have an in-house finance team, we can help with that too. We handle the finance back office function for over 500 clients.
How else can Kingston Smith help?
We have a team of experts who can review how you account for VAT on transactions to ensure that you are meeting HMRC’s requirements and that you reduce your risk of penalties. Why not take MTD one step further by reviewing your strategic objectives with our business advisers? VAT health checks can identify areas where you need to make changes, often helping to recover additional VAT.
MTD is an opportunity for many organisations. Digital records allow a deeper understanding of your organisation. Information gained can provide vital insights into achieving growth and greater profits.
We can put in place a bespoke dashboard that instantly shows how you are performing against your KPIs. The data can then be analysed to benchmark against your competitors. Our real-time dashboards help clients stop working in their business, so they can work on their business, focussing on strategic objectives to drive their organisations forwards.
For more information, please visit our MTD Hub.