Digital tax changeover a challenge for industry

While the majority of farmers are aware of HMRC’S making tax digital (MTD) initiative, almost twothirds of farm businesses have yet to adopt compatible systems before reporting VAT returns in this way becomes mandatory in under five months time.

Robin Dandie, partner and agricultural lead with accountants Johnston Carmichael, said that MTD was being viewed as the biggest shake-up to the taxation system since self-assessment was introduced more than 20 years ago – but a survey conducted by the firm had shown that while awareness of the issue was high amongst farmers, compliance was less so.

He said that those businesses registered for VAT with a turnover of above £85,000 – a category which would cover most farms – would need to keep their records in digital format and to submit their VAT returns with MTD compliant software on a quarterly basis from April 1, 2019.

But while most businesses already submit VAT online, he said the new measures would require returns to be submitted directly by digital accounting packages or by bridging software – and the current HMRC online portal which allows manual entry of VAT details would no longer be available.

He added that non-vat registered businesses would be phased in over the following months, with the roll out likely to be completed by 2020.

“With many businesses and individuals already banking, paying bills and interactingonline,thegovernment’s plans to digitalise the tax system through making tax digital is a logical step. MTD will help to make it easier for individuals and businesses to get their tax right and keep on top of their affairs,” said Dandie.

“And although some smaller businesses might fall under the £85,000 turnover threshold – as support payments are outside the scope of VAT – I’d urge farmers to speak to their accountants and to get a firm idea of how the changes will affect them.”

He pointed out that where farmers did not want to move to digital recording themselves, the services of a book-keeper or an accountant could also be utilised to comply with the new regulations.

HMRC yesterday said that although there would be penalties for failing to make returns under MTD, this would be handled with a soft touch in the initial period of the change-over – and fines would not be imposed where businesses were doing their best to comply with the law:

“However, HMRC will continue to take action to safeguard VAT revenue, and sanctions remain possible in cases of deliberate non-compliance,” said a spokesman.

He said that there would be some exemptions from the requirements where it was not reasonably practical for a business to keep digital records or to file direct from accounting software – such as reasons of age, disability, remoteness of location – or where it would contravene religious beliefs.

While admitting poor broadband provision might be an issue for some, he said it was likely that where farmers could file their returns under the current system they would have sufficient bandwith to file under MTD, adding that any current exemptions would roll over into the new system.