The continued push towards more automated statutory reporting to HMRC will see the Government’s Making Tax Digital (MTD) initiative rolling out from 2019 onwards. The first phase of MTD requires companies to keep ‘digital’ records and, in particular, digital VAT records. This means that businesses who currently use manual books and spreadsheets will need to move to a software application to manage their accounts and submit their VAT returns electronically, directly from the application to HMRC. As with any government enforced change in process, each phase comes with a deadline to focus the mind. If your turnover is above the VAT threshold you will no longer be able to manually enter your VAT return into the HMRC portal from May 2019.
Businesses below the VAT threshold will not be affected by Making Tax Digital until 2020 at the earliest, but ultimately all companies will be required to keep electronic accounts and submit their statutory reporting to HMRC digitally.
You may remember that George Osborne, in one of his last budget announcements, suggested that real time, electronic accounts and payroll reporting by companies would remove the need for personal tax returns as the Government would have full visibility of all income. With the first stages of Making Tax Digital rolling out in 2019, it’s fair to say that the former chancellor’s utopian vision is not going to become reality for some time yet. But as MTD becomes commonplace, it is worth keeping the end game in mind and taking it into consideration as you introduce or update your business software packages.
So what does this mean for Evans Weir clients and why raise it now? Whilst you can move to (new) accounting software/systems at any time, best practice says that year end is favourable as you have a defined, point in time, set of figures to act as opening balances and a single point of reference for the year. Therefore, with just 18 months before the deadline, and traditional financial year ends falling at the end of the calendar or tax year, the preferred and most obvious switch over points before the deadline are limited. We are also aware that a proportion of our clients that still have a degree of manual processing in their accounting function, so we want to provide as much notice as possible.
Because legislation like this is rarely cut and dried, there are needless to say some exemptions and curiosities that will need ironing out and so we will of course handle this on an individual basis and discuss it with you during 2018. But we wanted to take this opportunity to make you aware of the impending Making Tax Digital changes as it will ultimately affect each and every client – albeit over the next few years.