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Are you ready for MTD lift-off?

Making tax digital for VAT became a reality in April – so it’s vital to ensure you’re ready for this massive financial shake-up

The background

Although Making Tax Digital (MTD) for other taxes has been postponed, HM Revenue & Customs (HMRC) confirmed that MTD for VAT would go ahead as planned on 1 April 2019.As a result of this major change, any VAT return period starting on or after this date will be affected.

It means any UK VAT-registered business that makes taxable supplies in excess of the current £85,000 threshold will need to comply with MTD from this date, subject to the latest developments detailed here.

Current status – and some useful links

HMRC’s aim is for businesses to keep digital records, and for those records to be ‘digitally linked’. It also wants all VAT return figures to be submitted using something called an Application Programming Interface (API). HMRC is not intending to provide any API software but has published a list of third party providers. The link can be found in the box on the right.

To help businesses get ready for MTD, HMRC has launched a pilot service for companies with up-to-date VAT affairs. It has also created a timeline setting out the planned expansion of the service over the coming months. Details of both can be found in the same box.

A soft landing

For the first year of MTD, HMRC has outlined a ‘soft landing period’ that will require businesses to keep digital records and file VAT returns using the API. During this period, HMRC has relaxed requirements as to what constitutes a ‘digital link’, as outlined in the VAT notice link. However, after 1 April 2020 it is expected that HMRC’s rules on what constitutes a digital link will be tightened.

Non-compliance with MTD requirements can lead to penalties, although it is hoped that HMRC will adopt a similar ‘soft landing’ approach to these charges, particularly if businesses are also trying to deal with the potentially massive changes to the VAT and duty regime and processes that could be triggered by Brexit.

Action required

As MTD is now less than three months away, we recommend that, if you haven’t already, you should review your current systems to:

  • Determine where digital links may be required

  • Make a plan for the coming months, so you can comply when the requirements come into force.

The first priority will typically be to ensure an API is in place in good time for submission of the first VAT return due for the period starting on or after 1 April 2019, or 1 October 2019 where applicable, which brings us on to...

Deferral for some organisations

HMRC has announced a six-month deferral to the start date of 1 April 2019 for certain organisations or entities with more complex requirements. However, this only applies to:

  • Trusts

  • Not-for-profit organisations not

  • set up as a company

  • VAT divisions

  • VAT groups

  • Public sector entities required to provide additional information on their VAT, e.g. government departments and NHS Trusts

  • Local authorities

  • Public corporations

  • Traders based overseas

  • Those required to make payments on account and annual accounting scheme users.

The mandatory implementation date for these organisations or entities will now be 1 October 2019 to allow for further testing of the software to take place. Only those entities which will have already received a letter from HMRC confirming deferment can postpone compliance.

How we can help

BDO has extensive experience supporting organisations through MTD implementation.

Our areas of expertise include workshops to consider currentprocesses and identify any gaps and unbiased consideration of software providers to identify the best strategic fit.

Once the software is in place, we can also review and assess your digital links and provide advice and support to ensure they are effective and compliant.

Our review and input may also help to identify areas where your business could reduce VAT costs or risks and also help to identify any areas that could be impacted by Brexit. As SELECT’s financial advisers, BDO is happy to help you prepare for MTD. To find out more, or if you have any questions, please email pauline.davidson@bdo.co.uk or call 0141 249 5277.

 

Some useful links

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