We have seen a number of emerging questions on Making Tax Digital from our recent events and seminars. Here are some top key questions:
1. Do we have to upgrade to a cloud accounting system?
Many organisations who carry out manual calculations and use spreadsheets are concerned that they will be required to purchase a new accounting system or module which could be expensive. However, following the introduction of MTD, and at least throughout the soft-landing period of 12 months, it is possible to meet the MTD requirements by using bridging software. This allows the current VAT accounting system to continue, but the bridging software would communicate the VAT return boxes 1-9 VAT figures and summary information to HMRC via a digital link.
Many businesses are considering embracing technology changes and installing new software to make their business more efficient as well as compliant with MTD. The market is currently awash with new software to make businesses more efficient. Use this change as an opportunity to make larger changes.
2. My VAT accounting is complex: is it fit for purpose?
HMRC has said that after the soft-landing period, all records, VAT calculations and filings will need to be carried out digitally without any manual intervention. This means that it would not be possible to have any “cut and paste” links between data or spreadsheets. Some of the more complex situations, such as partial exemption, VAT grouping consolidations, international services, etc., would all need to be calculated correctly at source without the use of spreadsheets or manual calculations. It would be prudent to review the way in which VAT accounting and calculations are carried out currently, to determine if there are any risks or there are opportunities to adopt changes earlier.
3. Will HMRC be able to see all of my accounting and financial information?
During the initial stage of MTD, through the soft-landing period, HMRC will only be able to see boxes 1-9 of the VAT return. They will not be able to look through to source data or the records making up the numbers on the VAT returns. It is expected that at some point in the future, HMRC will be able to access detailed records and calculations.
4. Why is MTD being introduced?
HMRC has said that MTD will allow VAT (and the other taxes when they are introduced in the future) information to be accessed in “real time”, and that this will benefit both the taxpayer and the tax authorities. Also, HMRC believes that MTD will reduce human error and thus reduce the “tax gap”, which is the correct tax due compared to the actual tax collected. For VAT in the fiscal year 2017/18, it is estimated to be more than £3.3 billion.
5. When do I need to comply?
It will depend on whether the start date for your organisation is 1 April or 1 October this year. HMRC should have written to inform you if you have the later date of 1 October. The first complete VAT accounting period after your start date will need to be filed under MTD. It does not apply to VAT accounting periods that straddle the MTD start date.