Under MTD, eventually, all UK businesses and landlords will be required to not only submit their tax information to HMRC using ‘digitally compatible software’ but also use that software to record all business-related transactions. Furthermore, the annual self-assessment tax return will disappear and will be replaced by quarterly submissions and an annual ‘update’, but this is still some way off.
The first phase of MTD applies to all VAT registered businesses with an annual turnover over £85,000 – so those businesses which are voluntarily registered for VAT are not included in the initial sweep. However most agricultural concerns will exceed this turnover threshold and therefore will be caught. Initially, the rules only apply to the submission of VAT information, so on the face of it, it might appear that MTD phase one is not too different from the current regime of submitting VAT returns online. As ever, however, the devil is in the detail.
For starters, the software chosen needs to link directly to HMRC’s systems through an ‘API’ (Application Programming Interface) which is how each businesses software will ‘talk’ to HMRC’s MTD software using the internet. This will spell the end of the current Government Gateway method of logging into HMRC’s VAT services for businesses to submit VAT returns. Businesses might assume that their current software will be able to do this but that may not be the case. Businesses will need to check whether there is a need to upgrade or subscribe to additional services and they should do that now.
As well as linking directly to HMRC, every business will need to record and keep certain records and accounts digitally in what HMRC refers to as ‘functional compatible software’. This is software which can: “record and preserve digital records, provide information and returns from data held in those digital records using the API platform and receive information from HMRC via the API platform.” HMRC expects that there will be software products available which will perform all these functions however HMRC has no intention of making available any free MTD software tool, similar to the HMRC Basic Tools software for payroll submissions. Businesses are therefore on their own.
Businesses will be able to continue to use a variety of software solutions, including spreadsheets providing the transfer of data between such systems is by means of a ‘digital link’. The VAT notice details what constitutes a digital link and provides various examples.
While many businesses have already made the move to compatible software, there are still a significant number which rely on spreadsheets or even manual records for recording VAT information. These businesses need to do something now. The final sting in the tail is that MTD for VAT applies for VAT periods commencing on 1st April 2019 – that is less than 200 days away. If a business completes monthly VAT returns, that means the first VAT return under MTD will be due for submission by 7th June 2019. HMRC intend to implement a points-based system for determining penalties for late submission under MTD, from 2020.
My advice therefore is to act now. Businesses need to review their current systems and procedures to make sure they are going to meet the MTD requirements. Businesses who are not compliant should speak to an accountant now about the options available as leaving this too late may mean missing the deadline.