MAKING TAX DIGITAL

As part of a wider UK Government initiative HMRC is gradually changing the relationship between the tax payer and the government by ensuring that most of its dealings with taxpayers in the future will be online .

From April this year, HMRC’s flagship initiative ‘Making Tax Digital’ (MTD) comes into effect. Initially the impact will be on UK VAT-registered businesses over the current £85,000 VAT threshold.

While MTD doesn't change the VAT schemes that businesses are on, it does have a significant impact on how records are kept, how data used for transactions is handled and how the process of filing with HMRC is managed.

For those businesses what are using spreadsheets, desktop software or bespoke systems, it is unlikely that these will be compliant unless additional software or upgrades are purchased and installed.

One of the major criticisms has been the lack of communication with the taxpayer. it has taken HMRC a while to communicate all of those affected; the first formal communication was via social media in late October last year with only six months before MTD would come into effect! The next communication what by letter a month later to some but certainly not all, leaving the possibility that many small businesses could be unaware or unprepared.

So, what do you do to make sure did you are Ready for the new digital age and are compliant?

Bookkeeping Technology is the key to success

Bookkeeping is the secret of financial management and of MTD for VAT. It’s not rocket science.Fraud is frequently quoted as the reason for the tax gap; but undoubtedly human error also plays a part. Part of the rationale behind MTD is the reduction and eventual elimination of human error by the introduction of digital record-keeping. Therefore, HMRC is attempting to minimise and eventually eliminate as much manual processing as possible.

Spreadsheets

In a recent concession HMRC accepted that Spreadsheets are an acceptable form of digital record keeping; but in order to be compliant they must use bridging software to complete the filing process. And that is the core of the issue. At the time of writing the bridging software is still not available, from all commercial software suppliers. This bridge is known as the ‘digital link’.

These solutions are primarily being marketed to accountants in practice to help them service is many clients as possible. There is concern, however, that there is a long-term issue with spreadsheets: As more taxes become digital in the future no one can be sure for how long they will be acceptable.

The Cost of the Digital Link

Digital links are a way of automatically processing data, such as filing totals for VAT returns, without rekeying or even copying and pasting. For example, at the moment data may need to be collected from several different sources in order to complete a VAT return. The problem arises when onewants to file the result. In other words, to create the ‘digital link’. Currently HMRC is taking a soft approach for businesses that rely on data from multiple sources to create the required ‘digital link’;but there is no soft landing for filing and thereby create the digital link. In the future, however, VAT inspections will include looking at the whole process to ensure a seamless digital link.

Ultimately there is a cost implication for accountants and for businesses alike. The best advice available now is to consult your accountant and seek his or her help when choosing software that will be acceptable not just in the short term; but also, into the foreseeable future. Clients’ software must be compatible with the accountants’ systems and software.

In conclusion, watch this space...

Mary Talbot-Rosevear