The Association of Taxation Technicians (ATT) is urging software houses and HMRC to identify Making Tax Digital (MTD) compliant software packages urgently to allow businesses to make an informed decision on which to use and help to avoid the need to make a troublesome mid-accounting period change. As the ATT explains, some businesses will need to have MTD complaint software in place in just five months’ time.
Under MTD, businesses above the VAT threshold will be required to keep their records digitally and provide HMRC with quarterly VAT updates from the beginning of their first VAT quarter starting on or after 1 April 2019.1
Quarterly updates will have to be submitted to HMRC from software via an Application Programme Interface (API). It is therefore important for such businesses to make sure that they have an accounting package which can do this and, if not, ensure they do in good time for their first quarterly VAT update under MTD. The ATT says that for many, that may involve using software for the first time and at an unwelcome cost.
Where a business has an accounting period which spans their first MTD VAT quarter, they will have to ensure they have appropriate software in place at the start of that accounting period (which may be well in advance of April 2019) or risk having to change accounting software mid-year.
Yvette Nunn, Co-chair of ATT’s Technical Steering Group, said:
“MTD for VAT arrives in April 2019, but many businesses will have to decide about their software soon.
“The first businesses to come into MTD will be those with a VAT quarter running from 1 April to 30 June 2019. If they happen to have a 30 June year end, they will need to have an MTD-compliant accounts package in place by 1 July 2018 or risk changing their accounting package mid-year. This gives them only five months to select and integrate a new package if their current one would not be MTD compliant.
“It would be a major headache for businesses, from a practical perspective, to have to change mid-accounting period, as when they come to do their accounts or tax return, the information would be spread over two systems. It would also make it difficult to get an in year view of profitability.
“HMRC will be providing an online tool to help businesses identify which software packages will meet their MTD needs but until that is available it will be very difficult for businesses and the agents advising them to make an informed decision.
“The ideal solution would be for the MTD for VAT start date to be altered so that it applied from a business’s first accounting period (and not VAT quarter) starting on or after 1 April 2019. If that is not possible, we would urge software houses and HMRC to identify as soon as possible which packages will work for MTD. Businesses also need guidance on what they should do if they only find out in the middle of an accounting period that their software package is not likely to be MTD compliant.
“Clarity on these matters will enable informed decisions that provide good business outcomes at the same time as ensuring compliance with MTD obligations from day one.”
Notes for editors
- Under Making Tax Digital (MTD) many businesses will be required to keep digital records and make quarterly reports to HMRC.
MTD was originally to be introduced for income tax from 1 April 2018. However, on 13 July 2017, the Government announced that it would be delaying the introduction of MTD. Under the new timetable:
- Initially, only businesses over the VAT threshold (currently £85,000) will have to keep digital records.
- Digital records will only be required initially for VAT purposes, and only from April 2019.
- Business will not have to keep digital records or report quarterly for other taxes (e.g. income tax and corporation tax) until April 2020 at the earliest.
More information on MTD can be found here.