Changes to Record Keeping and Procedure
Introduction
On the 13th of July 2017, the government announced the Making Tax Digital (MTD) timetable, revealing that businesses over the VAT threshold will be the first to qualify for keeping digital records. Under the schedule, businesses with VAT taxable turnover over £85,000 will have to keep digital records and create VAT returns, using software which is compatible with MTD from the 1st of April 2019.
Records Changes
Come the 1st of April 2019 it will no longer be adequate for businesses to hold manual records. Digital records will have to be kept on ‘compatible software’ which is broadly defined as spreadsheets or software that can connect to HMRC via an Application Programming Interface (API).
HMRC have outlined that software must be able to:
• Hold records in a digital format
• Maintain these digital records for 6 years
• Produce VAT returns from the digital information
• Connect with HMRC to provide this information digitally
• Send HMRC with data on a voluntary basis
• Receive information from HMRC in relation to the business’s compliance record
Issues
The major challenge surrounding record keeping is the transition businesses will face from changing record keeping from manual to digital. Although figures suggest that 99% of VAT returns are currently filed online, only 12% of these are submitted through software. This suggests that between now and the 1st of April 2019, 87% of VAT registered businesses will have to fundamentally change the way they keep records and adopt the use of a software.
Furthermore, the traditional submission procedure of manually typing the calculated VAT figures into the HMRC portal will be eroded by the MTD system. In the future, returns will have to be submitted directly from the software to HMRC. It is still unclear regarding the requirements for transferring data between software and HMRC, with discussions continuing on this matter.
The target set out by the government is an ambitious attempt to accelerate the tax system into the 21st century, however, drastically changing record keeping methods used by the majority of VAT registered businesses is no easy task!
Solutions
Businesses will need to start planning as soon as possible. Discussing the move to the most appropriate digital software for clients’ businesses, with their agents, is the first step to take. HMRC has released a list of compatible software.
At Aston Shaw, we already have a substantial amount of our client base on accounting software and have successfully helped planned and complete business transitions from manual to digital record keeping on a variety of accounting software. If you would like our help in getting ready for April 2019, please do not hesitate to get in touch.
