Making Tax Digital – What does it mean for you and your business?

19 October 2018

We all know that the UK is updating the way that we view and submit our taxes, bringing the country to a new digital age of finance. Right now, it may feel like the process is confusing, time consuming and a difficult as we transition, but once we have it means that the process of submitting your taxes will be easier and the returns will be faster.

You may be asking what the main changes are regarding making tax digital and what it means for you and your business, so we have compiled a short list for you.

Changes to record keeping

Businesses will no longer be able to keep manual records regarding their taxes and official submission. Digital records must be kept up to date in what is defined as ‘functional compatible software,’ which means software or spreadsheets (or both) which can connect to HMRC via an Application Programming Interface (API) – and these must hold more information that is needed.

Changes to VAT return submission

VAT returns must be submitted to HMRC in an entirely different way. Instead of manually entering your VAT return figures onto the HMRC portal, compatible software must be purchased. This software must be able to communicate digitally via HMRC’s API platform, meaning that the figures from the accounting software should not be manually rekeyed into another package, which would ordinarily deal with the VAT adjustments or combination of data sources. Rather than manually inputting these, new software will be allow us to transfer the information to the government digitally. There will be a ‘soft landing’ in the first year of making tax digital, allowing more time for digital links to be put in place. ‘Copy and paste’ can still be used during this period but not for the VAT periods commencing on or after 1 April 2020.

Timing

Making tax digital for VAT is still expected to take place on 1 April 2019, which is meant to be the time when the UK leave the EU. Notwithstanding the proposed transitional period to 31 December 2020, uncertainly around the VAT treatment of transactions between the UK and EU will inevitably arise, and businesses will need to both understand the tax-technical changes to the rules and ensure that their accounting systems deal with such transactions correctly. In any event, April 2019 remains a challenging time frame, particularly as the software trials are currently still in the private pilot stage on a very small scale. The public pilot stage was expected to be launched in summer, but the timeline has slipped back and is now anticipated to begin in autumn. Initially, this will be for smaller businesses, but it will be opened to large business and public sector bodies later in the year, which may mean that the latter businesses only have one VAT return period for testing before making tax digital for VAT goes live.