In October 2019, the “Making Tax Digital” (MTD) initiative will be rolled out to all remaining entities.
What is happening?
The change requires all VAT-registered businesses to use the MTD service to keep records digitally and use software to submit their VAT returns.
Why does it matter?
MTD was introduced on 1 April 2019 for most VAT-registered businesses, but it will be extended in October 2019 to the remaining categories of entities. This includes, amongst others, trusts, not for profits not set up as a company, public corporations and local authorities.
A digital system is said to address mistakes and a lack of care when submitting tax returns, therefore cutting the ‘tax gap’ between the tax which the Exchequer expected to be paid and what it was actually paid (estimated at £33bn for 2016-2017).
The change represents an administrative burden on businesses, with the need to purchase and integrate new software and systems capable of keeping digital records and submitting returns. Smaller companies and not-for-profits who may be less likely to already track invoices digitally may find the new system difficult to introduce.
The increased accuracy brought about by digital records may well increase businesses’ VAT liability in the short term, but theoretically the changes should lead to a decrease in HMRC action due to issues with VAT returns and therefore save companies money on tax disputes in the long run.
What action should you take?
- Start preparing for the introduction of MTD ahead of time.
- Make sure that you keep track of your invoices digitally ahead of October 2019.
- Invest in software which is compatible with MTD systems so that you are able to submit returns.
- Consider investing in appropriate training for your staff to use the new systems and minimise teething problems upon the initiative’s introduction.
This article was first published in RPC's Retail Compass Summer edition 2019