Category

Making Tax Digital (MTD)

Potts & Co Accountancy

Making Tax Digital & VAT

By | Budget Update, Making Tax Digital (MTD), Potts & Co Accountancy & Business Advice News

There were rumours before the Budget that the VAT registration threshold would be reduced, but the Chancellor has committed to hold it at £85,000 until April 2022. This will provide some certainty to businesses who need to know whether and when they must comply with the Making Tax Digital (MTD) rules.

Currently, only VAT registered businesses with annual turnover above the registration threshold have to sign up to submit VAT returns under the new MTD procedures. This will apply to most businesses for VAT periods starting on and after 1 April 2019. However, a number of complex businesses, such as corporate groups and overseas businesses, have had their start date for MTD for VAT deferred until VAT periods beginning on and after 1 October 2019. If your business uses the annual accounting scheme for VAT you will also enjoy a deferral of MTD.

The MTD for VAT pilot is now open to single companies and sole traders but there are many businesses who can’t sign up to the pilot yet. When your business is eligible to join the MTD for VAT pilot you should receive a letter from HMRC inviting you to join. The first of these letters are being sent out this month.

We can help you sign up to submit VAT returns under MTD but first, you will have to activate your business tax account on gov.uk. If you have not used your business tax account yet we can talk you through the procedure.

Potts & Co - Accountancy & Business Advice

Making Tax Digital: What, When & How

By | HMRC, Making Tax Digital (MTD), VAT

If your business is VAT registered, and the turnover for the last year has exceeded  £85,000, you should soon receive a letter from HMRC stating that you must comply with the making tax digital (MTD) rules from April 2019.

The MTD regime requires you to keep all records relating to VAT in a digital format and submit VAT returns through MTD-compliant software. The online VAT return form on gov.uk will be closed to all businesses required to comply with the MTD for VAT regime. This is because HMRC wants to minimise the risk of human error in the submission of VAT figures.

The online form will remain open for businesses who have voluntarily registered for VAT and whose annual turnover is under £85,000. But beware, as soon as your turnover for the last 12 months exceeds  £85,000 you must comply with MTD from the start of your next VAT period.

You are responsible for keeping your business records in a digital form. This means recording the data from each transaction electronically. You don’t have to take a picture of each purchase receipt and sales invoice, but you must record the date of the sale, value excluding VAT and the VAT rate applied. Shops which use retail schemes can keep a digital record of the gross daily takings, so don’t have to record each sale separately.

A spreadsheet will qualify as a digital record if the VAT data can be transmitted via a digital link to MTD-compatible software, which submits it to HMRC. The digital link can be as simple as sending the spreadsheet to us by email, so we can import the data into our software.

Some businesses will prefer to use cloud-based accounting software, which enables people at different locations to access the data simultaneously. The accounting software will also automatically provide a back-up of the data.

If your accounting system hasn’t been updated for a while, contact us to discuss a more MTD-compatible model.

Potts & Co - Accountancy & Business Advice

Prepare to Digitise VAT

By | HMRC, Making Tax Digital (MTD), Potts & Co Accountancy & Business Advice News

HMRC is pushing ahead with its plans for Making Tax Digital (MTD) for businesses, although some changes concerning non-business income have been put on hold. The first tax returns to be converted to the MTD regime will be VAT returns due for quarters that start on or after 1 April 2019.

If your business is VAT-registered because your annual turnover is at least £85,000, you will be required to submit VAT returns using MTD-compliant software. If you registered for VAT voluntarily and your turnover is still below £85,000, you will be able to submit VAT returns as you do now, either by using accounting software or via the online form.

MTD-compliant software is capable of transferring data to and from HMRC via an application program interface (API). A spreadsheet on its own can’t qualify as MTD-compliant, but if it is used with an API add-on (so-called bridging software), it may comply.

If you use accounting software, your first step in preparing for MTD for VAT should be to contact your accounting software provider to ask when they will issue an MTD-compliant upgrade. HMRC will not provide free software for businesses to comply with the MTD regime.

If you currently keep all your VAT records on spreadsheets and/or paper we need to talk about how you can digitise your systems over the next nine months. We can continue to submit your VAT return on your behalf, but we will need to receive the VAT information from you in a digital fashion (such as on a memory stick) or downloaded from cloud-based accounting software.

It will be possible to claim an exemption from MTD for VAT, based on disability, remoteness from internet connection or religious grounds. However, HMRC must grant an exemption: it won’t be given automatically.

Potts & Co - Accountancy & Business Advice

Making Tax Digital: VAT First

By | Making Tax Digital (MTD), Potts & Co Accountancy & Business Advice News, VAT

The objective of the Making Tax Digital (MTD) project is to get businesses to record their accounting transactions digitally through accounting software and to use that software to report summary totals to HMRC each quarter. As VAT-registered businesses already submit VAT returns online, normally quarterly, the Government has decided that MTD reporting should start with VAT.

For periods beginning on and after 1 April 2019, VAT registered businesses with turnover at or above the VAT registration threshold (£85,000), will be required to use accounting software to submit the figures reported on each VAT return to HMRC. This will mean a change in practice for most businesses, as 88% currently take figures from their spreadsheets or accounting system and type the amounts manually into HMRC’s web based online VAT form.

Under MTD the VAT figures must flow directly from the accounting software, although it may be possible to have software that reads data from a spreadsheet.

Businesses who have voluntarily registered for VAT, as their turnover is under the VAT threshold, will not be required to enter the MTD reporting regime in April 2019. The MTD reporting will also be optional for those who are registered for VAT in the UK as non-resident traders and who have turnover under the VAT threshold.

There may be particular issues to overcome for VAT groups who need to combine data from several companies to submit on one VAT return and for businesses who need to adjust their accounting figures to accommodate VAT rules such as for partial exemption, capital goods and margin schemes.

Let’s talk about how we can work together to crack this MTD nut. It will be a case of using the software that best suits your business circumstances.

Potts & Co - Accountancy & Business Advice

VAT, MTD & Fraud

By | Budget Update, Making Tax Digital (MTD), Potts & Co Accountancy & Business Advice News, VAT

Registration

The UK’s VAT registration threshold is the highest in the EU at £85,000; some people argue that it holds back growth as businesses deliberately reduce sales to remain outside the VAT net. This may be true and the Treasury is going to look at how the VAT ‘cliff edge’ can be managed better.

In the meantime, the VAT registration threshold will be frozen at £85,000 until at least 2020 and the deregistration threshold will also be fixed at
£83,000. This helps you predict whether you will have to be VAT registered as at 1 April 2019.

This is the start date for the Making Tax Digital (MTD) regime, when all VAT-registered businesses with turnover above £85,000 will have to keep all their accounting records digitally and report their VAT figures quarterly to HMRC using accounting software.

Construction

The Government believes there are many ‘fly by night’ firms in the construction industry who charge VAT to their customers, then disappear before paying that VAT over to HMRC. To tackle this problem a reverse charge system for VAT will be introduced in October 2019 which will shift the VAT charge from the supplier to the customer. Businesses in the construction industry will have to adapt their account systems to cope with this change.

Online

Traders who sell online, and don’t charge VAT when they should, undercut honest UK traders who correctly charge VAT to their customers. From early 2018, online market places will be jointly and severally liable for VAT payments due on the goods sold through their site. The website will also have to display each seller’s VAT number and check that each number is valid.

Potts & Co - Accountancy & Business Advice

Online Filing Of Tax Returns

By | HMRC, Making Tax Digital (MTD), Potts & Co Accountancy & Business Advice News

Your personal tax return for 2016-17 must reach HMRC by midnight on 31 January 2018. Submitting it online is generally the most efficient way to do this. However, this year HMRC’s coding of the tax calculation contains a number of errors, which means taxpayers who fall into one of 32 circumstances (the exclusions) can’t file their tax returns online, so must file a paper tax return instead.

HMRC has promised to fix some of the 2016-17 tax calculation errors by 31 October 2017. This should help taxpayers who have

significant amounts of savings or dividend income, where it makes sense to set part of their personal allowance against that income. Those taxpayers should be able to file their 2016-17 personal tax returns online with the confidence that their tax bills will be correct.

However, not all the tax computation errors will be fixed before the paper-return filing deadline of 31 October 2017. For example, there are no plans to fix the code to ensure that the profit averaging adjustment for farmers, market gardeners and creators of literary or artistic works is performed correctly.

If your return still can’t be filed online from November 2017 onwards, a paper tax return must get to HMRC by 31 January 2018. This means allowing time for the postal service to deliver the return and getting proof of posting from the Post Office.

It will also be necessary to enclose a Reasonable Excuse Claim form for not filing online, and to state ‘Case is listed as exclusion’ on that form. If HMRC don’t find a Reasonable Excuse form with a paper tax return received after 31 October 2017, they won’t block the automatic £100 penalty. When that penalty arrives, you can appeal against it, but it’s better to get your claim in first. We can help you complete your tax return and the Reasonable Excuse form.

Potts & Co - Accountancy & Business Advice

Making Tax Digital

By | HMRC, Making Tax Digital (MTD), Potts & Co Accountancy & Business Advice News

The Government would like all businesses to interact with it digitally, particularly where tax is concerned. Although most tax returns are submitted online, HMRC believes that humans make too many errors on those returns, so the ideal position would be for the business’s computer to talk directly to HMRC’s computer on at least a quarterly basis. This is the essence of the making tax digital (MTD) project.

However, MTD has run into several political sandbanks, which has prompted a delay and a rethink. Now MTD for most businesses won’t commence until at least April 2020, but VAT reporting will be used as test- bed for MTD from April 2019.

Businesses who submit quarterly VAT returns will be required to use accounting software to submit their VAT figures directly to HMRC, without a manual step between the accounting system and the VAT return. This is a big ask, as many businesses need to do manual adjustments for matters such as partial exemption, overseas sales and schemes used by particular sectors such as farming. The accounting software producers don’t have long to come up with workable solutions.

The Minister has said the MTD system must be shown to work well before it is extended beyond VAT.

Potts & Co - Accountancy & Business Advice

Tax reporting is going digital

By | Making Tax Digital (MTD), Potts & Co Accountancy & Business Advice News

The law to implement the online quarterly reporting of accounts and tax information, known as Making Tax Digital (MTD), was not passed before Parliament was dissolved, but that doesn’t mean the project has been scrapped.

HMRC is investing a huge amount in the digitisation of the tax system and the MTD project will continue, whichever Government is in power after the General Election. It is possible that the timetable to roll-out MTD may be tweaked to delay some aspects until 2019. This would be welcomed, as the software providers need more time to develop accounting software which will suit all types of taxpayer and all budgets.

In the meantime, take a hard look at your own accounting records. Are your business receipts and expenses mixed up with your private expenditure? If you have a separate business bank account, it is far easier to collect only the business-related items and report them to HMRC. Could you use an app to record your business mileage accurately?

Let’s talk about how some simple changes in the way you record expenses and sales could make your life a bit easier.

Potts & Co - Accountancy & Business Advice

The digital tax revolution

By | Budget Update, Making Tax Digital (MTD), Potts & Co Accountancy & Business Advice News

Making Tax Digital (MTD) is coming. Businesses and landlords will be required to submit online a regular summary of income and expenses to HMRC, at least quarterly. The annual tax return will be replaced by a personal digital tax account, which will be updated with information HMRC receives from third parties, such as banks.

This information flow will only be possible if every business uses software which can communicate directly with HMRC’s systems. HMRC has said a free version of this software will be available for some small businesses.

The start date for those businesses to comply with MTD reporting has been pushed back by one year, which will give the software suppliers extra time to work on their free offering. Taxpayers with business or rental income of no more than £10,000 per year will be exempt from the MTD reporting requirements. A

ll other businesses and landlords will have to start sending regular ‘updates’ for the first accounting period that starts on or after:

  • 6 April 2018 for unincorporated businesses with turnover exceeding £85,000, excluding large partnerships
  • 6 April 2019 for unincorporated businesses with turnover exceeding £10,000 but not £85,000
  • 1 April 2019 for all VAT-registered businesses, for VAT-related reports
  • 1 April 2020 for all companies to report income and expenses subject to corporation tax and for partnerships with turnover of £10 million or more

There are still many unanswered questions about the practicalities of MTD, but it is happening. Let’s talk about how your accounting system can be adapted to cope.

Potts & Co - Accountancy & Business Advice

Revised cash basis

By | Making Tax Digital (MTD), Potts & Co Accountancy & Business Advice News, VAT

Reporting income and expenses under MTD will be easier for businesses who draw up their accounts using the cash basis. This is a basic form of accounting which suits certain small unincorporated businesses.

Currently, in order to use the cash basis you must be a trading business, not a limited liability partnership or property investor, with turnover not exceeding the VAT registration threshold (£83,000).

You must switch to a traditional accruals basis of accounting once your turnover exceeds twice the VAT threshold (£166,000). The entry and exit thresholds for the cash basis will increase to £150,000, and £300,000 respectively, on 6 April 2017. However, other restrictions remain, including a block on setting losses against the trader’s other income and a £500 cap on the amount of interest which can be deducted per year.