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Making Tax Digital bridge

MTD: An update

With just over four months to go until Making Tax Digital (MTD) comes into force, published statistics* reveal that over 40% of businesses that will be affected by MTD for VAT are not yet aware that this will be the case. Over the course of these remaining months, HMRC will contact businesses directly about the switch to MTD, but this leaves little manoeuvrability for businesses who have so far avoided planning, to get prepared and get on board.

Read more below and also view our new MTD video here to find out what plans need to be in place...

HMRC have recently announced a delay for certain businesses to 1 October 2019 (around 3.5% of mandated businesses). This applies in the following cases:

  • VAT groups
  • VAT divisions
  • Trusts
  • Unincorporated charities
  • Public sector entities required to provide additional information on their VAT return (Government departments, NHS Trusts)
  • Local authorities
  • Public corporations
  • Traders based overseas
  • Those required to make payments on account
  • Annual accounting scheme users

MTD: A recap

From 1 April 2019 all VAT registered businesses with taxable turnover above £85,000 will be required to use their accounting software to electronically file their VAT return directly with HMRC.

Where are we now?

There are a number of software providers already compliant and capable of creating digital links with HMRC. HMRC are working directly with other suppliers who are working toward making their software compliant in time for MTD.

HMRC have listened to concerns about how challenging it is for businesses to have digital links in place across their software in the timeframe provided. They have subsequently stated they will employ a “soft landing” approach during the first year of MTD to alleviate some of the pressures in switching over. HMRC have also made clear their intention to use moderation in ruling what constitutes a digital link and have worked to allay the fear of penalties during the initial changeover period. They have made assurances that they will accept the use of "cut and paste" for the first year of MTD in place of a digital link and this means that clients using software that does not currently have the capability of direct linking to HMRC will be able to temporarily use bridging software.

Bridging software – helping your journey to compliance

Bridging software is a digital tool capable of creating the necessary link to HMRC to transmit the required VAT information from a business’s current software package to HMRC. This fix gives some much needed short term relief to those who currently use spreadsheets to prepare and analyse their VAT data!

To clarify, a spreadsheet alone will not be compliant during the interim period unless it has the capability to create a digital link or an application programme interface (API) with HMRC itself. If spreadsheets are your preferred method of reporting, please bear in mind that bridging software provides a short term fix and is not a long term solution.

Clearer still is that manual systems, i.e. pen and paper, will absolutely not be acceptable after 1 April 2019.

Penalties for non compliance

A points based penalties system for non compliance will likely follow the interim grace period (anticipated from April 2020):

  • One point for a missed VAT return
  • Fine after accumulating four points
  • Accumulated points expire after two years

HMRC will additionally impose interest charges calculated on the amount of tax owed:

Number of days late Penalty
Up to 15 days 0%
16 to 30 days 50% of interest rate charge
More than 30 days 100% of interest rate charge plus a daily charge

If you use methods that are not MTD compliant, don’t delay the inevitable and consider switching to compatible software now. It is easy to keep on doing things the way they always have been done, but MTD will unsettle the status quo.

The benefits extend beyond mere VAT compliance and provide the ideal opportunity to review your current systems and procedures, to identify areas that can be improved and streamlined and further enhance your overall financial operation.

Please contact Emma Chesson here or on +44 (0)330 124 1399 to find out more.

Emma also explains what MTD is, why it needs to be taken seriously, how it may impact you and your business and what plans need to be put in place now in our recent video. Click here to watch now.

*Source: MTD awareness and planning: business survey, ICAEW. Read more here.

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