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HMRC Making Tax Digital VAT – The Key Facts

HMRC are focused on an ambition to ‘become one of the most digitally advanced tax administrations in the world’ and with a statement like that additional compliance and headaches will follow for all.

With the first phase of what HMRC are calling Making Tax Digital (MTD) due to affect businesses and charities as early as April 2019 there has been much talk in the charity community about whether charities would be exempt from these new MTD requirements.

HMRC have given some leniency towards charities and confirmed that charities will be exempt, for the proposed introduction of the quarterly reporting of financial information which HMRC are planning to introduce after 2020, unless they have trading subsidiaries.

However in the interest of parity across all business, where a charity is liable to be registered for VAT and has a taxable turnover above the VAT threshold, the Making Tax Digital requirements for VAT still apply.

With the sector seeing some of the more complicated VAT returns including Partial Exemption calculations, this is not an area that can be ignored and left to the last minute. By looking at this now we can ensure that you are compliant with the new regulations.

As part of the latest Budget it was announced that there would be a 6-month deferral to the April 2019 start date for ‘Not for profit’ organisations that are not companies. Remember this is only a deferral!

In order to break down the facts, here are the common questions about MTD we are asked:

What are the criteria?

The first phase of MTD is aimed at businesses, including charities. Any business or charity registered for VAT and with a taxable turnover above the VAT threshold of £85,000 will need to keep VAT records digitally and file their VAT returns using MTD compliant software.

If your taxable turnover is close to the VAT registration threshold and you exceed this at any point, compliance with MTD will become mandatory even if your turnover subsequently drops back below the threshold.

How long do I have?

This will begin with the first VAT period starting on or after the 1 April 2019.

Is my current software compliant?

Our clients use many different types of software from basic accounting packages to sophisticated tailored accounting solutions and anything in between. We have been consulting with the main providers who are all working towards their solutions by working closely with HMRC.

HMRC have produced a list of suppliers who are working with them towards compliance and this can be found here.

This list is not exhaustive and will be added too regularly. We advise that all businesses and charities contact their current software supplier to see whether their current solution is indeed working towards compliance and gain assurances of any additional costs in doing so. Alternatively, speak to us and we will be able to look into this for you.

My software supplier has confirmed they are not working on a solution, what next?

Although not ideal this situation isn’t the end of the world. HMRC have discussed instances where ‘bridging software’ can be used. Bridging software will take your information and report the accounting information digitally to HMRC. We have been working with software suppliers and can assist in implementing this solution where required.

We do advise our clients to always evaluate their software and whether they believe they are getting optimal functionality that their time and money deserves. We have helped clients transition to software that saves time, has more accessibility and gives clients a better understanding of their financials.

With MTD on the horizon, this is a great opportunity for you to look at your accounting function and evaluate your current processes.

Will software calculate partial exemption and other complex VAT calculations?

Many accounting solutions do not cope well with these calculations and require manual calculation outside of an accounting package. HMRC have recognised this and will allow these submissions to be made through bridging software. We are talking with the major software suppliers, ensuring we have suitable software in place for April 2019.

Want to know more?

Kreston Reeves have a dedicated team helping its clients look at solutions to MTD and bringing the new wave of user-friendly, time efficient products to its clients.

If you have any doubts about your current solutions whether it is its cost or its usability we will be able to access as to whether there are better options out there for you.

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