Are You Prepared to Go Fully VAT Digital?




As a small business owner, you will know that all Vat Returns have been digital, i.e. online, for some time. But you may not realise that HMRC’s plans do not stop there. In under a year, you will have a very different set of requirements to fulfil.

Phase One of the new Make Tax Digital course of action comes in as early as April 2019. So start planning in this tax year, for the changes to come in the next.

Making Tax Digital – the implications

The authorities now intend to more or less make it mandatory for you to buy or lease what they describe as functional compatible software, such as Clearbooks, to make all your entries real-time. (observe to Mac users: check that your chosen solution will work in the UK).

This may average an end to leafing by paper records every quarter or year, but it does average that you (or whoever does your accounting) will have to keep on top of, and record, all forms of expenses as they happen, in addition of course as your invoicing.

It is said (following representations from small business groups) that spreadsheets can nevertheless be used if you link them electronically to HMRC, but this is intended as a permanent measure and it could be problematic in practice.

VAT goes first

The initial phase of what is intended to be a complete business tax changeover by 2021 is that VAT records will be made digitally, continuously reportable from April 2019.

The VAT Returns currently only list total sales and purchases. After April 2019 you must digitally record every single item, showing the VAT component – e.g. zero-rate, standard-rate. All the adjustments you may make – reverse charges on imports, car leases, subsistence, entertainment etc. also need to be shown.

There are possible upsides and downsides:

Advantages:

  • Less physical paperwork and collation/conversion of spreadsheet information
  • Avoidance of VAT recording errors and possible fines

Disadvantages:

  • additional expense of cloud accounting software (for current non-users)
  • Continuous recording replaces quarterly or annual work
  • Likely additional hours charged by your accountant on conversion and to ensure compliance

Who is affected

Organisations that have annual sales of £85,000 are obliged to be VAT-registered: below that level, they may opt to register if they think they may go beyond the amount in the current year or soon.

This is not just limited companies, but also partnerships, only traders, public organisations, schools and charities.

It is quite possible that those who are close to, but below the threshold may now elect to withdraw from VAT registration, or not to join if they otherwise were planning to. We advise a discussion with us at vicinity Accountancy if you are uncertain, because there are arguments for and against and each situation will be different.

There is to be an initial 12-month ‘honeymoon period’ when no penalty fines will be applied, to those who are VAT-registered. There will certainly need to be a bedding-in stage for small operations that do not have external financial assistance.

With other taxes due to be converted to ‘complete digital’ by 2021, it is HMRC’s vision that overall, organisations will be better off in future. The devil, as ever, will be in the detail.

Let us have an early discussion to make sure that you are not caught out by the new requirements and ways of working.

Source: http://www.find-uk-accountant.co.uk/articles/odiri-tax-consultants/107




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