From April 2019 VAT registered businesses who have a turnover over the VAT registration threshold (currently £85,000) must use accounting software to file their VAT returns. If your turnover is over £85,000 you will no longer be able to use the Government Gateway to file a return. The only businesses which will be exempt from complying with this regulation will be those who are already exempted from filing online and businesses which are below the VAT registration threshold.
Whilst accounts software has had the facility to file VAT returns directly from it for the last few years, HMRC has introduced a new interface which has meant accounts software developers have had to change their software to fit the new HMRC requirement. The well known accounts softwares such as Sage, Xero and Quickbooks are already testing this interface and will be ready with their updated software before April 2019.
This change does mean that businesses who are using an old version of Sage or Quickbooks which is not cloud based will have to purchase an upgrade in order to enable them to meet MTD requirements. This is difficult for some businesses because they have other software linked to their accounting package and any change to the accounting software has an impact on the others linked to it. It may be that there is not even an upgrade available which will be able to work with current or even updated add on software. It is therefore important for businesses to look at their options as soon as possible so they can make any change necessary. There will be no other way of filing a VAT return except through software with the new HMRC interface so it is important that businesses plan for this now if it is more than just a straightforward decision to update or change.
Known as Making Tax Digital or MTD, maintaining your accounting records digitally has been in the planning for a few years. It was delayed for a year because of the General Election in 2017 but is now just eight months away and businesses need to be prepared.
Maintaining your accounts digitally just means recording each of your transactions within accounts software so that they can be submitted directly to HMRC. HMRC does not require you to keep your supporting paperwork electronically.
If you submit monthly VAT returns your first MTD VAT return will be for the period to the end of April. If your VAT quarter is April to June you will have to submit your first MTD VAT return in July.
If you are VAT registered but below the VAT registration threshold of £85,000 you will not need to use accounts software to file your returns but if you want to you will have to apply to HMRC to have the exemption removed. Businesses who file VAT returns under the annual accounting scheme will still file one VAT return annually. Those who use the flat rate schemes will be able to file from their software to the new HMRC interface.
If you don't currently use accounting software and have a turnover over £85,000 you will need to decide what software you are going to use and when you are going to start using it. We always recommend moving from one method to another at the start of a new financial year as it is a lot easier. But if this is not possible then the start of a new VAT quarter is the next best option. We would suggest not trying to do it part way through a VAT quarter.
If you need help to get started we can set up your accounts using information from your previous accounting records to ensure the balances are correct at the start and we will provide training so that you can do some or all of the accounting yourself. We generally recommend Xero to businesses who are not currently using software as it is user friendly and straightforward but we can also set you up on Sage and give you some initial training.
If you are unsure how MTD will affect your business or need some help with changing over from your manual records to software give us a call. We can arrange a meeting to discuss your needs and give you some advice.