Making Tax Digital
NOTES FOR CLIENTS RE MAKING TAX DIGITAL
HMRC has introduced legislation which initially will affect all VAT registered businesses for VAT periods starting on or after 1 April 2019.
All businesses will be required to keep their records in electronic format which can then be seamlessly uploaded to HMRC.
If you use one of the major accounting packages, ie: Sage, Quickbooks, Xero, Liquid Accounts etc this will not be a problem, except that manual alterations to your VAT returns are not allowed. Any adjustments must be made in the accounting records prior to submission of the VAT return. This may have particular challenges for clients using non standard methods of accounting for VAT eg: Partial Exemption, Retail Schemes, Flat Rate scheme and VAT groups.
HMRC have, however, confirmed that, as an alternative, businesses will be able to keep records in spreadsheets but this will require special “bridging” software to take the information in the spreadsheets and transfer it to HMRC. This software is not yet available because HMRC still have to specify how they will require the information.
Clients that do not use the major accounting packages come into 3 categories:
(a) Those that are using an accounting package which will not be updated to cater for digital submission of VAT returns.
These clients will have no choice but to either update their software or switch to a new digitally compliant accounting package, unless they want to go down the spreadsheet route.
(b) Clients that already keep their records in a spreadsheet.
The spreadsheets will need to be adapted to make sure that they contain all the information required by HMRC and they will need the bridging software.
(c) Clients who keep manual records.
For most clients in this category, it is probably easiest for them to switch to a spreadsheet but we can do this for clients if they do not want to get involved in this area. There may be other clients who would prefer to use an accounting package.
HMRC intend that going forward, businesses (and not just VAT registered
businesses) will have to keep all their records in electronic format (not just the information for a VAT return) and they will need to send in details of their income and expenditure on a quarterly basis, followed by a final & year end submission.
No doubt this will take into account the outcome of the digital VAT submissions.
Until details of the spreadsheet requirements and bridging software are released, it is very difficult to advise clients as to what the best route is for clients that do not already use up to date accounting software.
However, as soon as this information is available, we will be advising clients as to their best course of action and we will give clients all the support they need to make sure that they comply with the new rules.
We will also advise clients who currently keep their records on accounting packages, but make manual adjustments outside of the accounting system, as to how to make these adjustments within the accounting system.
If any clients have any further questions about making tax digital, please do not hesitate to contact us.