It’s not quite the same as the excitement and anticipation you feel in the countdown to your birthday or to Christmas Day. The countdown to Making Tax Digital isn’t exactly tinged with the same degree of positivity as these annual extravaganzas but you can consider yourself officially part of this mass participation event if you’re VAT registered and your turnover exceeds £85,000.
You’re officially part of it whether you want to be or not. By the 1st of April 2019, you must be compliant with Making Tax Digital because the last thing you need right now is the taxman giving you a Secret Santa present in the form of a brown envelope containing a paying-in slip with a large number pre-written into it.
Today, the Panthera team look at Making Tax Digital and how to be compliant on time.
What is MTD compliance?
MTD compliance is the ability for your business to keep accounting records in a digital form and using these records to submit your VAT returns on time. Other taxes, including income tax and corporation tax, will eventually migrate to the MTD system but not just yet – April 2020 is currently the favoured date but it has not been confirmed yet by HMRC or the Chancellor..
Unlike the current system, the level of detail required for an MTD-compliant VAT return is much greater and your software has to be ready for the new system by 1st April 2019.
If you’re under the VAT threshold, you have another year to get ready.
What if 1st April comes and I’m not compliant?
From 1st April, every time you submit a VAT return, you must use accounting and bookkeeping software which conforms to the new MTD standard. The VAT site you currently report to will disappear. If you try to log on to the new site using software that is not MTD-ready, you won’t be able to file your return and this will leave you subject to a late filing penalty.
The software I use is bespoke and not compliant – what should I do?
Ideally, you should update your software. Many modern online bookkeeping and accounting packages allow the import of data from older systems however not all do.
It’s worth checking this now because you may have to bring in an IT contractor to help you with it. Unfortunately, if this is the case for your business, HMRC will not compensate you for the contractor’s time.
Does the VAT penalty system change after MTD comes into effect?
Yes – and this was the subject of heated debate between HMRC and the accounting profession during 2018. The accounting profession favoured one system and I am sure you can guess what comes next – HMRC chose to ignore our opinion.
The £100 fine has gone. The percentage-based surcharge has also gone. Fines imposed on companies will be based upon a brand new points-based system. If you submit your VAT annually, you get 2 penalty points for missing the deadline for submission. Businesses paying quarterly will be fined 4 points and those paying monthly will receive 5 points.
Points stay on your record for 24 months after which they drop off. HMRC have not yet announced the size of the penalties they wish to impose but you should expect them to be, in their words, “set at a higher rate…but unlike the current penalty regime, there will be no escalation to daily or tax-geared penalties”.
This new system will be introduced from 1st April 2020 – until then, the current system applies.
Be MTD ready with Panthera
There’s a few weeks to go now – we’ll already have been in touch with you about this. If you haven’t had the time to respond, we understand – you’re busy enough. If that’s you, we implore you not to hold off any longer.
To become MTD compliant with Panthera, please call 01235 768 561 or email email@example.com.