Making Tax Digital and its effect on professional practices
We are now approaching 6 months until the introduction of HMRC’s Making Tax Digital, or MTD as it is referred to.
MTD has been borne out of an ambition of HMRC’s 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. The idea of electronically submitting information to HMRC and digitalising the tax system is aimed at reducing human input and, therefore, errors which HMRC believe are costing the Exchequer. According to their figures, between 2014 and 2015, over £3.5billion of revenue was lost due to mistakes in VAT returns alone.
Appropriately, the first phase of MTD is aimed at VAT registered entities with a taxable turnover above the VAT threshold of £85,000. Anyone fitting these criteria will need to keep their VAT records digitally and file their VAT returns directly using MTD compliant software, rather than manual submissions or the process of logging on to HMRC’s government gateway to file a return.
This first phase of submitting the VAT information to HMRC, is purely an initial step towards what HMRC are ultimately hoping to achieve and that is the move to more frequent reporting of financial data and move away from annual updates through tax return filings.
Over the past few years there has been a wave of new accounting products available to maintain financial records using cloud based systems. These have helped our clients gain a better understanding of their financial data by working on a real time basis and reducing the amount of time spent maintaining accounting records.
In the professional practices sector many clients have based their accounting software around their practice management software, meaning that the extraction of financial information isn’t always the simplest. The introduction of MTD has posed a challenge to these software providers. They are now working towards compliance with these new regulations, but HMRC’s recently released list of MTD compliant software suppliers was missing some of the more renowned software providers in the sector. This doesn’t mean that plans aren’t in place for these software suppliers to get MTD compliant and we have had confirmation from a few that it is being worked on. As a precaution we advise all clients to speak to their software providers and ensure that solutions are indeed being worked on in time for the MTD introduction on 1 April 2019.
No solution forthcoming?
Should there be an issue with your current software provider where they are not working towards compliance with MTD, there is a solution, although not ideal. HMRC have highlighted instances where ‘bridging software’ can be used. Bridging software will take your information from your existing software and report the accounting information digitally to HMRC.
This bridging software will also be available for the more complex VAT returns where special VAT schemes are in use and further calculations, which the software does not process, are required.
Want to know more?
Kreston Reeves has a dedicated team helping our clients look at solutions to MTD and bringing the new wave of user friendly, time efficient products to them. We can assist on integration of accounting software with specific software designed to help manage a practice, ensuring you get the best information, day to day, to run the business but also backed up with sound financial information helping you make informed business decisions.
If you have any doubts about your current solutions – whether it’s cost or usability – we will be able to assess as to whether there are better options out there for you.
Key points to take away
- MTD begins in April 2019 for VAT registered businesses with a taxable turnover above the VAT threshold of £85,000.
- Most software companies are working towards solutions, is yours? Now is the time to check
- Kreston Reeves will be on hand if there are issues offering solutions for your practice.
The time to act is now, before we know it 2018 will be coming to a close and MTD will be in force. Action now will give peace of mind and ensure compliance is not a headache in the New Year.
For further information on the above, please speak with us here.
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