This Government initiative came into effect from April 2019, which means that all businesses with a VAT-able turnover above £85,000 should now be complying with the new MTD regulations. In recognition of the problems associated with Coronavirus, HMRC has given businesses more time to become MTD compliant and put in place the required software and digital links.
Notwithstanding the extension of this period of grace up to April 2021, it is vital to recognise the importance of preparing for MTD for VAT and reviewing what will be needed to comply in terms of your current accounting systems and any new software you may need.
For those businesses who fall within Phase One of MTD, before they sign up, they will need either:
- a compatible software package that gives the facility to keep digital records and submit VAT Returns, or
- bridging software to connect non-compatible software (like spreadsheets) to HMRC systems.
Some businesses already have their own, bespoke IT systems which they use to keep their financial records and produce their tax returns.
They can integrate MTD into their own systems, linking it to their business processes.
Several MTD-compliant software packages are available, which help to keep your tax affairs in order as well as providing new tools which help to analyse business performance. To help source the right package for you, HMRC has published a list of available software, giving details of the provider and who can use it. You can check via this link:
Many businesses may prefer to carry on using Excel spreadsheets or their current software with which they are familiar. This will be acceptable, but businesses should be aware that their software must have the facility to keep digital records and to submit reports directly to HMRC via digital link. In order to meet this requirement, they may require bridging software.
Provided their accounts data can be converted to a CSV format, the bridging software will enable them to be MTD-compliant without having to change their current accounting software.
Challenges for small businesses
In terms of improving bookkeeping and accounting efficiency, MTD should be seen as a welcome development. Any size of business can benefit from keeping digital records, helping to manage the finances more effectively and reduce avoidable errors. Under the new system businesses need to report their information on a quarterly basis throughout the year but can in fact report more often if they so wish.
There are bound to be teething issues with MTD as businesses need to select their quarter-end dates as well as make the necessary administrative changes to their accounting systems.
However, many small businesses are not yet ready to implement changes to ensure they are MTD compliant. A recent accountancy industry survey of 500 businesses in England and Wales found that 40% had not heard of MTD for VAT.
Some micro and small businesses are still using paper-based accounting systems rather than dedicated software, smart devices or computers.
This may be because they are run by people who are wary of using technology for whatever reason or simply prefer to stick to the old familiar systems. They may find the switch to keeping digital records quite a learning challenge as well as an expense they might not be able to manage, particularly in the current circumstances relating to COVID 19.
They may even be taking advice from self-employed home-based accountants who are also offline and will need to ensure their advisors are going to be MTD compliant and able to file VAT returns digitally.
Unfortunately, many accountants have not yet met the deadline to make their systems fully compliant with MTD. Our team is fully set up and ready with HMRC-approved software to make the transition to the new system as smooth as possible. Speak to us now about how we can help you make the most of the new MTD business analysis tools and reduce your tax bill.