UK businesses will have to file VAT returns online, starting in April 2019.

In short:

 The communications with HMRC will be automated

 Tax summaries are submitted through software to give HMRC an accurate view of accounts

 Businesses above the VAT threshold (£85,000) will have to submit their tax returns through software

Digital finance management is becoming mandatory for everyone. If you don’t use software to manage your finances, now you have to start. Making Tax Digital will impact your work. 

To help you start, we made this article with what you need to know about Making Tax Digital.

Making Tax Digital (MTD) is a government plan to “make it easier for individuals and businesses to get their tax right and keep on top of their affairs”. This means the end of the annual tax return for millions. The plan aims to improve efficiency and make it easier to comply.

In 2019, you’ll submit your VAT digitally. And in 2020 the scope widens.

Businesses above the VAT threshold (£85,000) need a digital tax account. They'll also file quarterly returns online.

You need to start preparing now to make the transition as smooth and painless as possible.

Making Tax Digital for Business will be in effect in April 2019 for VAT obligations. It applies to businesses and individuals.

Only businesses above the threshold will have to use the system. It includes companies, LLPs, charities and unincorporated business. The others can use it if they choose to.

This plan makes it easier for businesses to get their tax right. It builds on the already existing online filing system.

VAT is present in every business transaction. You can account for it in different ways. Whether your customer is a business or a consumer, VAT is in every sale. Some exceptions, like sales outside of the UK, may be in place.

It’s mandatory to register for VAT once your earnings pass the defined amount. Once that happens, you have 30 days to register. Keep in mind, that it can change from year to year.

There were other ways for you to submit your VAT returns. For example:

 Annual accounting VAT scheme - instead of filing quarterly returns, you’ll do it annually. You have a deadline for reporting and to make payments.

 Flat rate scheme - pay a percentage of your total turnover as VAT. It depends on the type of business you run.

 Cash accounting scheme - the VAT is accounted for on the day you’re paid, not on the day the invoice is sent. 

But, after April 2019, you’ll have to file VAT returns through digital channels. This may be inconvenient, especially if you keep manual records.

You have to make sure you file your VAT returns are correct and on time. The HMRC charges fines for late submissions, payments, and incorrect information. It can also charge significant fines to businesses that don’t account for VAT correctly.

You’ll have to keep all your financial records stored in digital format. It’ll be a lot easier for businesses that already manage their accounting with software.

This will help you get an overview of your finances. Know how much VAT you owe or rectify information. There advantages to this plan, according to the HMRC. The four foundations of Making Tax Digital are:

1. Better use of information - you don’t have to give information to the HMRC that it already has or can get from elsewhere (banks, employers, etc). You’ll be able to see what information the HMRC holds, see if it’s complete and correct.

2. Tax in real-time - HMRC collects and processes information that affects tax. You’ll know how much you need to pay as close to real-time as possible.

3. A single financial account - in 2020 you’ll be able to have a complete picture of your financial account.

4. Interacting digitally - you can interact with the HMRC when convenient for you. 

Save for the change to digital records, VAT schemes won’t have any major changes. For example, the flat rate scheme and the annual scheme will have to turn their records digital. But, the requirements don’t change. You can see the details here. 

Starting in April 2019, digital records are mandatory.

Whether you manage your finances in-house or have an accountant, you need to prepare. Make sure your accountant is familiar with the new rules and has the tools needed.

Ask your software provider if they’re making the necessary changes in the meantime. If you don’t use software, you’ll have to start now. Find a system that complies with the new regulations.

After it’s proven the system is working, the HMRC will widen the scope of the MTD. By April 2020, it’ll go beyond VAT for businesses.

What is Odoo? Click here to find out.

You need to contact your software provider. Ask what they’re doing to make sure you can comply with MTD.

To be in line with MTD, software needs to:

 Keep and save records in a digital form

 Create a VAT return from the records

 Give HMRC VAT information on a voluntary basis

 Receive information from HMRC via API

We are currently working on making Odoo compliant with MTD. You can ask us about it.

And check out our module that creates VAT reports.

If you manage your accounting manually, you’ll have a few months to convert to software.

First, you need to make a search for software. Try to find a system that covers your needs and follows the new regulations. Make sure your software solution can keep and preserve digital records.

Software can help you keep track of your information and give accurate reporting. It’s a great way to make ensure your financial information is correct. Not to mention, it’s a lot easier to work with than Excel.