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Making Tax Digital New Year Special Update (MTD)

With letters now arriving from HMRC informing businesses of their MTD obligations and with calls from the House of Lords to delay MTD until 2022 it would be good to take stock and see where we’re at.

So where are we?

Executive Summary

  • Implementation date April 2019
  • Good news if you’re an Accountants4SmallBusiness client already
  • What about spreadsheets and bridging software?
  • HMRC’s letter offers little help
  • The House of Lords and the reasons for a delay
  • Our opinion on MTD is to use this as a catalyst to get on the cloud
  • What next?

Recap

MTD for VAT is being implemented in April 2019. Please see the previous article and webinar from Accountants4SmallBusiness below

Links

From April 2019, all businesses above the £85k VAT threshold will need to keep records digitally and submit VAT returns to HMRC using MTD compatible software. The government’s Making Tax Digital (MTD) initiative means that UK businesses will need to store digital records and submit updates to HMRC using recognised accounting software.

Good news!!!

If you are an Accountants4SmallBusiness client then you will be using MTD compliant software already in which case you have nothing to worry about (only around 2% of our clients aren’t using MTD compliant software).

Spreadsheets

A significant number of SMEs use spreadsheets. HMRC has stated that spreadsheets are OK for this but the spreadsheet you use will need to be able to connect to your digital tax account. The suggestion here is to use Bridging Software. In our opinion, the time and effort required to set up the bridging software would be better spent implementing cloud bookkeeping software instead (see the benefit below). 

What does the HMRC letter say?

The letter is pretty poor and offers little advice apart from “talk to your accountant”. Unlike Auto Enrolment where SMEs had plenty of notice and lots of guidance from the Pension Regulator, with MTD there has been hardly any guidance. In fact HMRC have relied on the accountancy profession and software providers to pick up the baton. 

If your letter mentions, Xero, Freeagent, Liberty or Kashflow then there is no need to worry as this software is (or will be) MTD compliant.

What are the House of Lords worried about?

The House of Lords and The ICAEW, CIOT and ATT are all concerned about the tight timescales with MTD only 15 weeks away. They argue it should not be mandatory from April 2019. They advocate a phased implementation where SMEs can adopt the technology at a pace to suit them (not to suit HMRC). 

The ICAEW have found that 40% of business were unaware (at November 2018) of their MTD obligations. They report that around 25% of SMEs use no system at all, let alone a MTD compliant system. They go on to say “We support HMRC’s ambition to increase the use of digital technology, but we are concerned, as is the committee, that many VAT registered businesses are not going to be ready for implementation in April,” said Anita Monteith, ICAEW’s tax manager. “Direct communication by HMRC about this major change is only just beginning and with only four months to go, there is not enough time for businesses to act”

The ICAEW suggest the implementation should be delayed until April 2022. 

The House of Lords Economic Affairs Committee’s Making Tax Digital for VAT: Treating Small Businesses Fairly report was critical of HMRC. Lord Forsyth of Drumlean, Chairman of the House of Lords Economic Committee, said: “HMRC has neglected its responsibility to support small businesses with Making Tax Digital for VAT. “HMRC are not listening to small businesses, while offering a six-month deferral to many in the public sector. “Small businesses will not be ready for this significant change to their practices, especially with Brexit taking place three days earlier.”

Our opinion on MTD

We see MTD as a catalyst for many SMEs to jump on to the cloud and to then get all the benefits they don’t see currently. At Accountants4SmallBusiness, we recommend Xero for SME and Freeagent for contractors.

Some of the benefits:

  • a real-time view of your finances
  • connect to so many time saving apps – eg Receipt Bank
  • save time with automatic bank feeds
  • get paid more quickly
  • plus so much more…………

What next?

We are keeping one eye on the House of Lords. In the meantime, we will be doing the following on the lead up to April 2019

  • We will set up your account with HMRC so we can file your MTD VAT returns
  • you may need to send us a HMRC code so we can get started – we’ll let you know to look out for this in the post
  • then we continue as we are – you wont really notice any other changes

Not an Accountants4SmallBusiness client?

We can help set you up on the cloud quickly. For us MTD is a tiny part of the story because the much bigger issue for SMEs are the benefits mentioned above (plus so much more). If nothing else, MTD will help you make the decision to jump on the cloud sooner. You’ll be glad you did.

Pop in to our office
in Canary Wharf

23 Skylines Village, London, E14 9TS