There’s No Time Like the Present To Get Prepared for Making Tax Digital (MTD)

Making Tax Digital (MTD) will become effective from 1 April 2019. It’s a government initiative that requires businesses with an annual turnover above the VAT threshold (£85k) to submit their accounting information digitally every quarter and means that all VAT returns, and the digital records of the VAT return, will need to be submitted via MTD from next April. You don’t need to submit the April return via MTD if you have a VAT quarter that begins in Feb 2019 and ends in April 2019 - it is after April 1st that MTD will come into effect, therefore it will be your next quarter ending in July 2019 that requires digital information. If your turnover is currently less than the VAT threshold of £85k but surpasses this amount at any point during the tax year, you will be bound by the MTD rules from that point, even if your turnover reduces again below the VAT threshold.

If your year-end is approaching sooner, or you’re approaching the end of a VAT period and you’re not already using a digital or cloud-based bookkeeping system, now could be the time to get prepared, and at LWA, we’ve collated some pointers for you below.

HMRC will be implementing a points-based penalty system, so that every time a client fails to submit a return correctly or by the deadline they will receive a point. A penalty will be charged at a certain threshold and further details on this are expected in the coming months, just be aware and plan ahead with our user advice below.

How will existing third-party bookkeeping software users be affected?

If you use:

Xero: Software within Xero allows you to submit MTD compatible VAT returns, so nothing will need to change a before 1 April 2019. For more information, please visit Xero’s website here.

Receipt Bank: This software is compatible with Xero and provides even smoother processes, making digital bookkeeping smarter, easier and quicker. Including the option to take a photo of your receipts with your smartphone so that you can keep accurate bookkeeping on the go.

Sage 50: It is now necessary to be on a Sage subscription package to be MTD compliant such as version 24c or 25c, or users not on these versions can purchase an additional MTD add on that Sage will charge for. If you are currently using an earlier version of Sage and pay a subscription to get the latest version, you will need to upgrade as soon as possible as it is not permissible to submit digital VAT returns in older versions of Sage. To find out more please go to the Sage 50 website here.

Can spreadsheet users comply with MTD?

HMRC will not be providing additional software for spreadsheet users so bridging software with MTD APIs will need to be bought if you are a spreadsheet user. At LWA we do not recommend this as it will be extremely time-consuming, and we aren’t aware of any parties providing the bridging software yet, meaning it is highly likely to be unreliable.

How do I get prepared?

At LWA we highly recommend upgrading your bookkeeping software, so it includes Sage or Xero, to be ready for you to submit your VAT returns before 1 April 2019. Due to the growing popularity there are plenty of good quality, time-saving and easy-to-use bookkeeping software systems at a relatively low-cost. At LWA, we are Silver Accredited Xero Partners which means we can help you get set up. The ideal time to change to Xero would be at your year-end or at the end of a VAT period.

Should you wish to know more about MTD or bookkeeping software then please get in touch with the friendly and expert tax team at Leavitt Walmsley Associates, or you can visit the GOV.UK website here.

Steve Collings

Written by Steve Collings

Steve Collings FMAAT, FCCA is the audit and technical partner at Leavitt Walmsley Associates Ltd and a member of the UK GAAP Technical Advisory Group at the Financial Reporting Council. He regularly lectures on small company reporting issues and the book benefits from his wide range of experience in dealing with clients in this area. He is also the author of Accounts and Audit of Limited Liability Partnerships, Fifth Edition and Financial Reporting for Unlisted Companies in the UK and the Republic of Ireland, Second Edition (both published by Bloomsbury Professional).

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