MTD for VAT: An Overview – Part 2
Getting started with MTD
Keeping accurate records is an integral part of a business. Poorly organized records could be penalized by HMRC. It is important to digitize the mountain of paperwork, containing all your business transactions, from the commencement of your accounting period. Your digital records should include, for each supply, the time of supply (tax point), the value of the supply (net excluding VAT) and the rate of VAT charged.
HMRC’s online tax submission system is faster, more convenient, and more secure. However, if you aren’t currently using software or if your software is not compatible with MTD, you can keep digital records in a range of different compatible digital formats. You can also use a spreadsheet to calculate or summarize VAT transactions and bridging software to make spreadsheet MTD-compatible.
If you are using more than one application, digital links are used for quick and safe exchange of data between software applications. Any further transfer or modification of the input data on the software must be exchanged through a digital link.
Transition to the New Tax Regime: Soft Landing Period with No Penalties
There will be a soft landing period for VAT return for one year from 1 April 2019 to 31 March 2020 without penalties. Businesses which don’t comply with the mandatory new VAT regime will not be imposed penalties for not having digital links between software programs. They are allowed to cut and paste records while upgrading their systems.
New deferred MTD start date: Determine, Deploy & Comply
When some concerns are expressed in certain quarters for complying with the mandatory Making Tax Digital start date, HMRC deferred MTD for VAT until October 2019. This should give a small group of businesses with more complex requirements a further 6 months to get started with MTD for VAT. This should allow them the chance to take part in the pilot program, which will be opened to them in Spring 2019. Businesses with the revised timeline will give a short window for proper testing of MTD service.
Challenges in Implementing MTD
It is not simple and easy for businesses to comply with MTD on-the-fly. You will be barred to access the government gateway portal to file your VAT returns. However, commencing 2020, HMRC will penalize non-compliance. For this purpose, transfer of VAT return data to bridging software to make submissions to HMRC must be digitized compulsorily and is excluded from the soft landing provisions.
Top 3 Solutions for Small Businesses
Maintaining the use of Excel spreadsheets and manual processes to calculate your VAT is will never allow you to achieve this outcome. There are various online tools and apps to maintain your accounting records and automatically calculate VAT. Get the best solution for your business to streamline your operations, improve productivity and are MTD-compliant. Here are the top three solutions to achieve compliance with the new VAT rules:
If you move your software to MTD-compliant software you will be able to store your digital records and interact with HMRC
Migrate your business into Cloud and maintain digital records and seamlessly communicate with MTD without manual interventions. Create a digital link between each software and create a digital journey.
If you are using digital accounting records for VAT purposes you have to use compatible software and submit. Businesses can customize their existing accounting software and upgrade it to be functionally compatible with the MTD platform.