Time is almost up to prepare for changes to VAT

VAT is currently the third largest source of revenue in the UK, but unlike other areas of taxation how it is recorded and collected differs significantly for businesses.
This complex area of tax is often one that we are questioned about, but now the fundamental system for how it is reported and recorded is set to change under Making Tax Digital.
By now you will have probably already heard from us about this landmark change to the UK’s tax regime, and yet a recent study has shown that only 57 per cent of VAT-registered companies in the UK are actually ready to deal with the requirements of the system.
From April, most VAT-registered businesses earning above the VAT threshold (£85,000) will be required to report their affairs digitally on a quarterly basis, using software that is compliant with HM Revenue & Customs’ (HMRC) systems.
While more than 70 per cent of businesses already report their VAT online, MTD will lay down stricter rules and requirements that businesses will have to abide by.
Under the new system, the information reported to HMRC will essentially remain the same, but the requirement for maintaining records will differ significantly in that businesses must store digital information and create VAT returns from digital records.
They must then use ‘functional compatible software’, or an API-enabled spreadsheet or a traditional spreadsheet and a bridging software to link with HMRC digitally.
Most businesses that fall within the threshold must start following the MTD rules from the first day of their first VAT period that starts on or after 1st April 2019. However, those with complex matters may be able to delay their start date to later in October 2019.
This means that those who aren’t yet prepared now only have weeks left to ensure they are ready for this landmark change.
Despite Government promises of a soft landing in the first year for the reporting of VAT, if businesses do not join MTD and record their information digitally as required, they will be penalised.
Most SMEs can comply with the new requirements using a ‘cloud’ accounting package such as Xero, QuickBooks or Sage and could also benefit from the other advantages that online accounting brings, including:

  • Real-time collaboration with accountants and advisors
  • Bank level security
  • 24-hour access to their accounting information
  • Real-time reconciliation with their bank

We have been running a series of workshops at our offices in London, which have been very well attended, but we are still standing by to help those who are yet to prepare for the changes ahead, either by assisting them with migrating their records online or providing advice on the other forms of processing.
We would encourage any businesses owners that have not yet prepared for MTD for VAT to contact us immediately to see how we can assist them.

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