With the implementation of Making Tax Digital (MTD) for VAT looming, it’s becoming increasingly more apparent that the new digital system for managing VAT is not going to be everything HMRC promised. In fact, reality promises to be a bit more challenging than the original vision of MTD for VAT. Many accountants are not ready for Making Tax Digital however every client at More Than Accountants are fully compliant.
VAT is vastly different from income tax in multiple ways. As a tax on business transactions, VAT accounts for a lot of variables not covered by income tax. Maintaining compliance once MTD for VAT becomes official is going to require accountants and their clients to be on their toes.
Preparing Clients for MTD
Accountants are being urged to assess the MTD readiness of their clients as soon as possible. A four-stage assessment is recommended as follows:
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- Qualifying Entities– Not all VAT-registered businesses will have to comply with the MTD mandate beginning in 2019. Therefore, accountants need to assess client qualifications. A business must have an annual turnover of at least £85,000 before compliance is required.
- Accounting Systems– Next, client accounting systems need to be assessed for their MTD compatibility. Non-compatible systems can still be used for record-keeping from April 2019, but MTD-compliant software must be used for filing and reporting VAT.
- Client Needs– In light of current accounting systems, some clients might need enhanced or entirely new software packages. Accountants should be working with their clients to assess any new software requirements that MTD for VAT may impose on them.
- Recommended Solutions– The fourth and final stage of client assessment is recommending new software solutions where applicable. It would be best if any new software combines both reporting and recordkeeping along with the electronic data links that will be mandated from 2020.
It has been recommended that accountants develop a scoring system for client assessments. Points can be assigned based on certain criteria of readiness. The higher the score, the less the company has to do to prepare for MTD for VAT.
Making the Transition to MTD
Accountants are also being urged to assist their clients with the transition following a successful assessment. Clients may need a little bit of time to get used to their new digital systems. Accountants can be there to help guide them through the learning period while working to prevent mistakes.
The Digital Link Mandate
The first year of the MTD mandate is considered a ‘soft landing’ period. HMRC will be a bit more gracious with its enforcement efforts during this time. But accountants should be aware that the cut-and-paste method for transferring data into MTD-compliant software will no longer be allowed from 2020.
Beginning the second year of MTD for VAT, any record-keeping system that exists outside of MTD-compliant software must be linked to that software electronically. Digital links will facilitate the automatic transfer of information from a separate record-keeping system into an MTD system so that no manual entry is required.
It makes sense that any advice an accountant might give regarding MTD-compliant software would include a discussion of the digital link mandate. It doesn’t seem reasonable to invest in a new software package now without accounting for digital links. It also doesn’t make sense to continue using a separate record-keeping system if new MTD-compliant software can include a record-keeping component.
The MTD for VAT mandate will be here sooner than we realise. As such, accountants are being urged to get with their clients to assess their readiness as soon as possible. Those clients at risk of not meeting the deadline should receive special attention in the coming months.