Making Tax Digital

Making Tax Digital

From time to time we feature guest contributors and are delighted Simon Greig, Sales Director of LawWare accepted our invitation to write on the very topical subject of Making Tax Digital.

Image of a notebook with the letters VAT written in different colours with the words Value Added Tax below

In July 2018 HMRC detailed ambitious plans to overhaul the methods by which Individuals and Business interact with HMRC for the submission of statuary information about tax related matters. They call this “Making Tax Digital”. This article focuses entirely on the impact for Businesses and their quarterly VAT Return submissions.

Overview of the VAT aspect

In April 2019 the UK government’s plans for Making Tax Digital (MTD) for VAT will come into operation. So, what is Making Tax Digital and what will it mean for law firms?

Essentially, legal and other businesses that meet the VAT threshold will have to keep their records digitally and provide their VAT return through MTD compatible software.

In a bit more detail

Making Tax Digital for VAT requires VAT registered businesses with taxable turnover above the VAT registration threshold to keep records in digital form and file their VAT Returns using software.

It is increasingly common for business records and accounts to be kept digitally, in a software program on a computer or tablet, or in a smartphone application, or maintained through such a device and stored using a cloud-based application. The difference under Making Tax Digital is that the software which businesses use must be capable of keeping and maintaining the records specified in the regulations, preparing their VAT Returns using the information maintained in those digital records and directly communicating with HMRC digitally via an Application Programming Interface (API) platform.

If your digital records are up to date, your software will be able to collate and prepare your Return for you. It will then show the Return to you and ask you to declare that it is correct and confirm that you want to submit it to HMRC. Once you have submitted your Return you will receive confirmation through your software that it has been received. (source #1).

So what is actually changing?

Up until now submitting a VAT Return has been a 2-step process. Forgive me for describing the LawWare related process but it is all I really know. LawWare Cash Accounts software records VAT information for law firms that are VAT registered. LawWare also records the dates when the VAT Quarters end. Therefore at a VAT Quarter End LawWare produces a draft of the VAT 100 and a list of VAT Outputs and VAT Inputs that correspond to the selected Quarter. The draft VAT 100 lists the 9 figures that are required for a VAT Return submission and this is step 1. Step 2 is the actual submission itself, which has required someone (either in the firm or the firm’s accountant) logging in to the GOV.UK website and entering in the (9) figures and confirming the submission. This method will run down after 31st March 2019 for all VAT registered businesses.

Depending on when your VAT Quarter starts and ends the timetable that affects you is as follows:

1st April – 30th June: the deadline for submitting your MTD VAT Return is 7th August 2019

1st May – 31st July: the deadline for submitting your MTD VAT Return is 7th September 2019

1st June – 31st August: the deadline for submitting your MTD VAT Return is 7th October 2019

How are returns to be made?

These Returns have to be made using Making Tax Digital compliant software. (Returns prior to these are made using the current method) (source #2).

Accounting Software (like LawWare) will combine steps 1 & 2 and both Calculate the VAT Return and Submit the VAT Return.

Bridging Software is specially written software that an HMRC agent (such as an Accountant) can use to electronically submit a VAT Return. This is the only workaround solution for businesses whose accounting software is not MTD compatible (or use spreadsheets for their financial records). HOWEVER – HMRC have announced this is only a 12-month window and after 1st April 2020 ALL accounting systems that businesses use MUST be MTD compatible.

What action should you be taking now?

You should be checking with your Accounts Software provider what they are doing about MTD. Hopefully they have already been communicating with you about this and you are aware of what is planned but you can (double) check with HMRC which software providers HMRC are working with as they publish a list.

https://www.gov.uk/guidance/software-for-sending-income-tax-updates

Visit this webpage and check that your supplier is featured here.

If your supplier is NOT listed; then alarms bells MUST ring loud. There is so little time left that a supplier starting now will likely fail to complete the stringent processes that HMRC require in order to prove and test an Accounts Software package before 1st April 2019 and therefore any supplier that cannot meet the timeframe should (in my opinion) be providing access to a Bridging Software based solution (free of charge?!).

As a further precaution, speak to your Accountant as soon as possible to understand what they are doing about MTD.

Once you have satisfactory advice; follow it.

About Simon Greig

Simon Greig is Sales Director at LawWare. Based in Edinburgh, LawWare supplies practice management software to 350 small and medium-sized Scottish Law Firms.
You can visit LawWare’s website on www.lawware.co.uk.
To contact Simon, call him on 0345 2020 578 or click here to email him.

Note for LawWare users

All LawWare users have been emailed with advice, if you have not received this please contact LawWare (Click here to email or call 0345 2020 578). LawWare and LawCloud are being updated to be MTD compliant by 31st March 2019. All LawWare and LawCloud users are on a scheduled upgrade plan to achieve this. LawCloud users will be upgraded automatically by LawWare. Installed LawWare users have already have been emailed about upgrade planning and asked for their IT Network support supplier to get in touch with LawWare to schedule a timetable for this upgrade. There is no charge to LawWare or LawCloud users from LawWare for this upgrade as this is a mandatory requirement to maintain Compliance.

Sources

#1 – https://www.gov.uk/government/publications/vat-notice-70022-making-tax-digital-for-vat/vat-notice-70022-making-tax-digital-for-vat

#2 – https://www.icaew.com/technical/tax/making-tax-digital/mtd-guidance/mtd-and-vat

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