Clock ticking to make tax digital for VAT

Hmrc: Deadline less than a year away to digitise VAT returns

Making Tax Digital for VAT is the

government’s attempt to digitise the

submission of VAT returns and

information.

What that means is that, rather than

gathering together the details for VAT

returns manually and on spreadsheets, and all the accounting records separately, all of these would be linked digitally and then submitted digitally to HMRC.

This will affect all businesses which

are required to be VAT registered in the

UK. That could be up to 2.3 million businesses who have until March 31 next year to make sure their systems are ready to handle this change.

For most taxpayers who are operating on a fairly standard accounting package – for example, Sage or Zero – it’s expected the providers will adapt their software to take account of these digital changes.

However, for other businesses that may have two or three accounting systems that merge and are brought together at head office, for example, or use quite a lot of spreadsheets to gather information, there will be a need to digitise the process of gathering all that information into one place to then

submit a VAT return and that will

require software that’s only now being developed.

Many businesses have been asking how much the change will cost.

HMRC estimates it will cost very little but most businesses think it will cost a significant amount.

It’s unclear at this stage how much more Sage, Xero and similar providers will charge in addition to their normal fees, but it’s clear that there will be an additional cost.

That software will need to be procured, and that won’t be free – HMRC won’t provide any software themselves.

The proposed system is different from the current system because currently

“HMRC estimates it will cost very little but most businesses think it will cost a significant amount.

ALAN DAVIS

you calculate your VAT return and then

submit your declaration via the HMRC website.

The new system will mean that there will be an electronic portal that your software system will talk to and there will be no manual intervention in

submitting a VAT return.

As taxpayers, HMRC would argue

that the benefit is that there’s less room for error.

The real benefit is that HMRC get more accurate data and if you look into the future a bit more, it’s not difficult to see that these software systems will start to deliver more information which will be used to measure risk.

On that basis they say that the more information you provide, the better it is for them and the less chance you’ll have of getting an inspection.

If you are a VAT registered business,

you need to be thinking about who currently provides your software.

You might need to ask them what they are planning to do in terms of Making

Tax Digital for VAT or you may have to

start looking at sourcing other potential software providers.

Making Tax Digital for VAT isn’t going away. If you are a VAT registered business, it’s important to start looking at your options now, so you can ensure a smooth transition come next March.

Businesses should prepare now to ensure a smooth transition when the new system is introduced next year.