As a small business owner, you will know that all VAT returns have been digital, i.e. online, for some time. But you may not realize that HMRC’s plans don’t stop there. In less than a year, you’ll have a very different set of requirements to meet.

Phase One of the new Make Tax Digital process begins in April 2019. So start planning this tax year for the changes to come in the next.

Doing Tax Digital – the implications

The authorities now intend to make it more or less mandatory for you to buy or rent what they describe as compatible functional software, such as Clearbooks, to make all your entries in real time. (Note to Mac users: Please check that your chosen solution will work in the UK.)

This may mean no more flipping through paper records each quarter or year, but it also means that you (or whoever does the accounting) will have to track and record all forms of expenses as they occur, as well as assumptions such as billing.

It is said (after representations from small business groups) that the spreadsheets can still be used if you link them electronically to HMRC, but this is intended as a temporary measure and could be problematic in practice.

VAT comes first

The initial phase of what is intended to be a complete business tax change by 2021 is that VAT registrations will be made digitally, continuously reportable from April 2019.

VAT returns currently only list total sales and purchases. After April 2019, you must digitally register each item, showing the VAT element, for example, zero rate, standard rate. All the adjustments you can make: reverse charging imports, car leasing, subsistence, entertainment, etc. you also have to show it.

There are potential advantages and disadvantages:

advantages:

• Less physical paperwork and spreadsheet data collection/conversion
• Avoid VAT registration errors and possible fines

Disadvantages:

• Additional cloud accounting software charges (for current non-users)
• Continuous recording replaces quarterly or yearly work
• Likely overtime charged by your accountant on conversion and to ensure compliance

who is affected

Organizations that have annual sales of £85,000 are required to register with VAT: below that level they can choose to register if they think they may exceed the amount in the current year or soon.

It’s not just limited liability companies, but also partnerships, sole traders, public organizations, schools, and charities.

It is quite possible that those who are close but below the threshold will now choose to withdraw from the VAT register, or not join if they planned to do so. We encourage you to talk to us at Region Accountancy if you’re not sure, because there are arguments for and against, and every situation will be different.

There will be an initial 12-month ‘honeymoon period’ where no penalties will apply to those who are VAT registered. Undoubtedly, there will need to be an adaptation stage for small operations that do not have external financial assistance.

With other taxes due to become ‘fully digital’ by 2021, HMRC’s view is that organizations will generally be better off in the future. The devil, as always, will be in the details.

Let us have an early discussion to make sure you are not caught off guard by new requirements and ways of working.

Source: http://www.find-uk-accountant.co.uk/articles/odiri-tax-consultants/107