Making tax digital

Making tax digital Moore Stephens East Midlands Tim Woodgates BSc (Hons) CTA ACCA MAAT

AGENDA • - What is the point of Making Tax Digital? • - What is Making Tax Digital? • - Does Making Tax Digital Legislation affect my business? • - What does my business need to do? • - When does Making Tax Digital begin – is it delayed? • - How can my business prepare? • - Can I still use spreadsheets for my business records?

WHAT IS THE POINT OF MAKING TAX DIGITAL? • Reducing tax payer errors to improve the tax take • Controversial premise • HMRC ambition to “become one of the most digitally advanced tax administrations in the world” • Recognition of new technological age

WHAT IS MAKING TAX DIGITAL? • All about how businesses and individuals interact with HMRC • Focus on digital records and digital submissions of data to HMRC • Making Tax Digital (MTD) only to apply for VAT purposes currently • No other taxes to brought into MTD until 2020 at the very earliest

DOES MTD AFFECT MY BUSINESS? • YES, if you are: • VAT registered AND • Have taxable turnover above £85k (VAT registration threshold) – i.e. exclude exempt turnover • Doesn’t matter whether you are a sole-trader, landlord, company, LLP, trust, charity, etc. • Once you're in – you’re in • Only escape is to de-register from VAT • Not subject to MTD if your business is voluntarily registered for VAT

EXEMPTIONS • It’s not reasonably practicable because of age, disability, remoteness of location or for any other reason • Subject to an insolvency procedure • The business is run entirely by practising members of a religious society or order whose beliefs are incompatible with using electronic communications or keeping electronic records MUST APPLY TO HMRC

WHAT DOES MY BUSINESS NEED TO DO? • Your business must record its transactions in a digital format within “functional compatible software” and submit its VAT return directly to HMRC from that software. • Manual record-keeping therefore will not be a compliant system • Any manual re-keying of information for the VAT return is not MTD compatible – the VAT return should be submitted seamlessly to HMRC.

WHAT INFORMATION NEEDS TO BE RECORDED DIGITALLY? • Designatory data • Name of business • Address for principle place of business • VAT registration number • Purchase invoice • Time of supply i.e. date • Total invoice value excluding VAT • Input VAT being claimed • Sales invoice • Time of supply i.e. date • Invoice value excluding VAT • VAT rate applying to the sale • VAT account • The creation of the VAT return essentially from the underlying records

WHAT INFORMATION NEEDS TO BE RECORDED DIGITALLY? • VAT adjustments can be journalled in i.e. fuel scale charge adjustments, partial exemption calculations, etc • No requirement to record digitally transactions that are outside of the VAT return i.e. wages paid • No need to create sales invoices digitally • Retailers – do not need to record every single transactions into their software. They must however record their daily gross takings in a digital format • The submission of the MTD VAT return is still only 9 totals

WHEN DOES MTD BEGIN? • VAT periods commencing on or after 1 April 2019 • First VAT return therefore 30 June 2019 • Deferred start date for complex VAT affairs of 1 October 2019: • VAT groups • Annual Accounting Scheme businesses • Trusts • NFPs and local authorities • Plus others Must have a letter from HMRC that states you are subject to the deferred start date.

HOW CAN MY BUSINESS PREPARE? • Review existing record keeping system • is it already compliant? • If already using software, are you on the latest version? • If not, you will need to look at either: • Purchasing some form of “functional compatible software” • Possibly outsourcing the VAT compliance to a third party

SOFTWARE • Issues to consider: • Cost - £6p/m - £20p/m or more?!! • Ease of use • Experience within business? • Recruitment? • Training? • Hardware cost? • Functions required? • Cloud based or standalone? • Benefits: • Ability to involve other apps such as automatic bank feeds and expense scanning for example – cut processing time • Real time management information • Accountant access – less compliance based and more strategic advice and planning • More future-proof than spreadsheets

OUTSOURCING • Issues to consider: • Cost • Redeployment of bookkeeping staff • Timing of information to be provided • Benefits: • Remove the MTD burden • Accessible on demand • Expert advice • Reduced employment costs • Efficiency gains • Benefits to tax planning and management reporting

CAN I USE SPREADSHEETS? YES • BUT you do need some form of “bridging software” to make it MTD compliant however • Bridging software operates as link between the business’s spreadsheet record and HMRC’s system (see next slide) • Likely to be the cheapest way of achieving MTD compliance • Need to consider how long this will be permissible however • Less powerful than a cloud based software option

Bridging software • Cost tends to be around £40+VAT per year • Operates by taking each part of the VAT return form and then directing the business to link it to the relevant cell within the spreadsheet • Example: • VAT registration number = link to cell A4 • Box 1 (Output VAT payable) = link to cell E187 • Box 4 (Input VAT claimed) = link to cell L133 and so on • The business would then enter their HMRC account details (User ID and password) into the bridging software and then be able to submit the VAT return. Have a look at Absolute Excel VAT Filer https://www.absoluteexcelvatfiler.co.uk/

Penalties • There will be a “soft landing approach” for the first 12 months • No penalties will be charged in the first 12 months if businesses aren’t maintaining records digitally • Points based system to apply from April 2020

Thank you • Any questions? • Tim Woodgates – Associate at Moore Stephens East Midlands Offices in Corby, Peterborough and Northampton • tim.woodgates@moorestephens.com • https://www.linkedin.com/in/timwoodgates/ • 01536 461900

Making tax digital