Making Tax Digital for VAT – How to Prepare Your Business
April 2019 is a landmark moment for Making Tax Digital – a government scheme aiming to transform the way businesses and individuals pay their tax. As of 1st April, businesses with a turnover above the VAT threshold will need to submit their VAT returns digitally.
And it’s no April Fool. Those who fail to do so will be treated as non-compliant and could eventually face a financial penalty. Read on as we take a closer look at the scheme and how you can prepare your company.
What is Making Tax Digital?
Making Tax Digital (MTD) is more than just one regulation change. It’s an ongoing effort to transform the tax system and – as the name suggests – make it digital. Coming into force from 2017-2020, the system aims to put an end to the traditional tax return with a range of HMRC services available through digital tax accounts.
So far, changes have been implemented in steps, with digital tax accounts launched in early 2017 and the option of digital tax returns for businesses from late 2017. However, April 2019 marks a major step in the transformation, with digital VAT returns becoming obligatory for some businesses.
What is changing?
From April 1st 2019, any business with taxable turnover above the VAT threshold – set at £85,000 a year until April 2022 – will need to use the MTD service to submit their VAT returns. That includes any VAT return from the period after April 1st, whether it’s quarterly, monthly or annually.
There are some exceptions for public corporations, local authorities and not-for-profit organisations or trusts, along with businesses that are based overseas or those which make payments on account. These organisations will be exempt for an extra six months, until 1st October 2019.
Could I be fined?
According to the Government, penalties will be issued on a points-based system, with one penalty point for any missed submission. There will be a 5-point threshold for monthly submissions, 4 points for quarterly and 2 points for annual – meaning you could receive a fine within six months.
Fortunately, penalty points aren’t permanent. They will be erased after a period of ‘good compliance’, defined as 6 compliant monthly submissions, 4 compliant quarterly submissions or 2 compliant annual submissions.
Making sure you’re compliant
If you want to avoid penalty points and fines – as we’re sure you do – it’s important to check whether the new rules apply to you. If so, you’ll need the right software – which needs to allow you to submit VAT returns and is compatible with MTD for VAT. You can check whether software is compatible online.
The next step is to sign up for MTD for VAT at least a week before your first VAT return is due. According to Which, only 4% of UK businesses had registered for MTD before April 1st.
However, with income tax, NIC contributions and corporation tax set to make the switch to MTD over the coming years, this really isn’t something businesses should be putting off.
Need some help?
Whether digital tax returns and MTD leave you confused, or you simply don’t have the time, UWM Accountants can help your business stay compliant with the new system. We’re a team of accountants in Leeds, specialising in Xero, which has been listed as MTD-compatible software by HMRC. Not only that, we have years of experience in processing digital tax returns for companies of all sizes, in a wide range of industries.
To find out more about how we can help you, simply get in touch with our team on 0113 231 0202.