Its what all VAT registered small businesses are talking about (besides BREXIT!)….MTD (Making Tax Digital) so whats it all about?
Emma Garrett, CEO of Mallusk Enterprise Park chats with Sharon Gillespie of MEP tenant Company, Gillespie Accountants Ltd. to find out more:
What exactly is MTD (Making Tax Digital) and who does it apply to?
Making Tax Digital is a government initiative that sets out a bold vision for a digital tax system to ‘make it easier for individuals and businesses to get tax right and keep on top of their affairs.’ The system commences on 1st April 2019 for VAT, and from this date there is a statutory requirement for any business or individual registered for VAT to comply with new digitisation requirements. HMRC have plans to roll out MTD for Income Tax and Corporation Tax – meaning the end of the annual tax return for millions – and the date was originally anticipated to be 2020, although this has now been postponed to enable the new VAT regime to settle down first.
It is expected the benefits to be gained are :
Effective – Tax recording will be more accurate, providing fewer opportunities for errors, miscalculations and fraudulent activity.
Efficient – The process will be faster and more automated for businesses, accountants and HMRC, helping them save valuable time.
Easier – With the right software, Making Tax Digital will make it easier for small businesses to record and file their tax returns online
Is anybody exempt from MTD?
Yes – there are some exemptions:
HMRC recognises that a minority of people genuinely cannot use digital tools and has agreed to legislate for an exemption.
This minority, referred to as the ‘digitally excluded’, are defined as those who cannot engage with accounting software or apps for reasons of:
- religion
- disability
- age
- remoteness of location
In its summary of responses, HMRC also stated “any other reason” for being digitally excluded as a justification for exemption to MTD and suggested that it will consider exemptions on a “case-by-case basis”.
How will MTD affect a business?
From 1st April 2019, VAT-registered businesses with a ‘taxable turnover’ above the VAT threshold (£85,000) are required to keep digital records for VAT and send HMRC their VAT returns using MTD-compatible software.
‘Taxable turnover’ includes standard, reduced and zero rated, but does not include exempt supplies or income outside the scope of VAT.
Once within the scope of MTD for VAT a business will remain subject to the rules, even if VAT taxable turnover subsequently fall below the VAT registration threshold. However, the rules will no longer apply if the business deregisters from VAT or meets one of the exemptions.
The new rules will apply to VAT accounting periods that start on or after 1st April 2019.
What advice would you give a business who hasn’t as yet taken any steps towards preparing for MTD?
It is absolutely crucial to take action now, and the following steps will help:
- Figure out if your business will be impacted by MTD for VAT
- Work out which business processes need to be adapted for MTD for VAT
- Ensure you have “functional compatible software” for MTD for VAT
- Work out when to switch to MTD for VAT
Further clarification will be available on this HMRC publication – VAT Notice 700/22 Making Tax Digital for VAT
If I miss the deadline are there any penalties?
The penalties in place are the same for MTD for VAT as they are currently for VAT. By taking the appropriate action and being prepared for the changes ahead, this will help you avoid these penalties. It is worth noting that new rules are already planned for an April 2020 launch.
How can Gillespie Accountants help a small business to comply with MTD?
We can’t speak for everyone, but if your accountant is already looking after your VAT and bookkeeping, you shouldn’t have anything to worry about when it comes to MTD!
Where our own clients are concerned, we’ve been hard at work for the past few months making sure our systems and processes are compliant with the impending switch to Making Tax Digital.
The most significant change for anyone registered for VAT, is that their entire record keeping process is digitised, preserved, and without any manual intervention, so preparation really is key.
Sharon, tell us a little about your business. When did you set up the business? What was your motivation behind setting it up? Do you employ any staff?
The original business was set up by my father as B Gillespie & Co in 1986, and I came on board in 1995. At that time there was just the 2 of us and we have grown over the years and there are now 4 additional full time employees. My father retired in 2012, and we had enjoyed 25 years working together. At that stage we then became Gillespie Accountants Ltd.
For further information you can contact Gillespie Accountants Ltd on:
Gillespie Accountants Ltd
Accountancy & Taxation Services
Units 55 & 57 Mallusk Enterprise Park
Mallusk Drive
Newtownabbey
BT36 4GN
Tel: (028) 9071 1200