The switch to a new digital tax system will impact hundreds of businesses but is the UK ready, asks Clare Elsby of Elsby & Co Chartered Accountants and Business Advisors.
HMRC’s Making Tax Digital (MTD) is set to replace the existing, often time-consuming, VAT reporting system from April 2019 onwards and will modernise taxes and help businesses improve their record-keeping, as well as providing crucial real-time information.
MTD will be compulsory for businesses with a taxable turnover exceeding the VAT registration threshold of £85,000, which means they will have to keep an electronic VAT account and submit information to HMRC using MTD-compatible software.
Companies will no longer be able to manually enter data through the HMRC portal and any business found to be in breach of these new regulations will be subject to the current VAT fine regime for non-compliance. Helpfully developers now offer a range of MTD-compatible software and if you already use accounting software you may be able to upgrade to an MTD-ready version.
By preparing early, business owners can rest assured they will be compliant when the new regulations are introduced in 2019.
However, new figures from The Institute of Chartered Accountants in England and Wales (ICAEW) indicate that more than 40% of businesses are still unaware the Government is introducing this change.
ICAEW’s latest survey further shows that although there has been a significant increase in the number of businesses using accounting software, a quarter are still relying on paper-based systems, meaning little has changed in the last two years.
One third (34%) of businesses currently plan to rely on their accountant or tax adviser to deal with the changes for them; 20% plan to buy new accounting software, and 15% have already done so. At least 20% of the businesses that will need to implement MTD have not made any preparations at all.
This lack of MTD awareness needs to be addressed and it’s clear that even many of the businesses that are aware of MTD for VAT have not started preparations to implement it.
There is a danger that businesses could miss the new opportunities being offered by cloud accounting packages, which can streamline bookkeeping processes and free up valuable time for business leaders to focus on other areas of their operations.
Given the need to review existing systems and potentially evaluate, purchase, train staff and test new software, this is a very real concern.
For further details contact Elsby & Co on email email@example.com, telephone 01604 678470, or visit www.elsbyandco.co.uk