What’s happening?
On the 1st April 2020 HMRC will (currently) put into effect phase 2 of Making Tax Digital for VAT, seeing the end of the ‘soft landing phase’.
Does this impact my business?
Yes, if you have a taxable turnover of over £85,000 pa.
What does ‘phase 2’ mean?
You need to prepare for three major changes:
- Switch to digital recordkeeping:-
The fundamental requirement is for you to maintain suitable Digital Records of your financial transactions and be able to submit them electronically to HMRC. Financial transactions include – recording of supplies received and made, including time of supply, value and VAT rate. This extends to other purchases, stocks and fixed asset transactions etc. Link to the HMRC guidance on MTD – https://www.gov.uk/guidance/keep-digital-records-for-making-tax-digital-for-vat
- Data to be transferred between systems digitally:-
If you are using more than one system (e.g. separate invoicing and accounts systems) then the data must be transferred between them via digital links. This means no manual inputting, including manipulation, consolidation or error corrections in spreadsheets. The ‘cut and paste’ concession allowed for the soft-landing will end.
- HMRC Penalties start:-
HMRC will be able to apply penalties for late filing, late payment or other breaches of the regulations. These will be on a cumulative basis, based on the number of offences in the past 12 months. Penalties can reach 15% of the VAT due, plus fines of up to 100% of undeclared VAT as a result of careless or deliberate inaccuracies.
What do I need to do?
Sign up for MTD – You will need to sign up for MTD and file your VAT returns digitally, if you have not already done so.
Use MTD compliant software – Transfer your accounting systems to MTD compliant software, if you have not already done so.
Advice Points:
If your business was eligible for a deferral when MTD was first introduced then you will also be eligible for a deferral of phase 2 until 31st October 2020.
Eligible businesses:
- trusts
- ‘not for profit’ organisations that are not companies (this includes some charities)
- VAT divisions
- VAT groups (the deferral applies to the group registration only and not to any group companies that are not covered by the group registration)
- public sector entities that are required to provide additional information alongside their VAT return (such as Government departments and NHS Trusts)
- local authorities and public corporations
- traders based overseas
- those required to make payments on account
- annual accounting scheme users.
HMRC has recently announced the option to apply for a further deferment beyond the ending of the soft-landing period.
Businesses with complex or legacy IT systems may apply for an extension; but cost alone will not be a sufficient reason to claim.
HMRC has stated that you will be able to stick with bridging software for MTD to maintain data if it still is able to transfer the data to HMRC without any manual adjustments or intervention.
How can Enhance Help?
- We have been working with a wide variety of VAT clients using the MTD platform from the very start.
- We are certified Xero software advisers and offer Xero licences.
- We have a wide experience of other software products including: Sage, QuickBooks & Kashflow.
- We offer flexible input, from guidance & advice to setting up software and running your VAT accounting function for you.
- We offer cost effective bridging software and an HMRC submission only service.
As ever, if you need any assistance or have any queries then please do not hesitate to get in touch.