Making Tax Digital (MTD) is the biggest shake up to the UK tax system in decades and is designed to make it easier and more efficient for businesses and individuals to keep on top of their tax obligations. But is the UK ready for its implementation asks Clare Hawthorn, associate director, BDO Reading?
In short, no. In a recent survey conducted by BDO, 64% of businesses told us they’re not MTD-ready and nearly half (47%) stated they have no plan in place. It appears that many risk not being fully compliant with regulations in time for the April 1, 2019 deadline.
Why are so many unprepared?
Alarmingly, over one third (37%) of businesses are ‘completely unfamiliar’ with the MTD regulations. This certainly makes compliance challenging. Additionally there are concerns that many don’t have the time and resources to fully prepare themselves for both MTD and Brexit (scheduled for March 29, 2019 at the time of writing).
Do all businesses need to be MTD-ready by April 1, 2019?
MTD is being phased in over time with only VAT businesses (with a taxable turnover above the VAT threshold of £85,000) affected by regulations in the first instance. Other taxes will not be impacted until April 2020 at the earliest.
HMRC has conceded that the MTD deadline was unrealistic for some more complex organisations and has therefore provided a six-month extension for some organisations, including unincorporated charities, public sector entities and VAT groups. However, this is a very short extension and businesses must still treat their MTD preparations with the highest priority.
It’s strongly recommended that all businesses prepare as soon as possible in order to avoid the possibility of penalisation.
What should businesses be doing?
If your business is one of those which is unprepared, don’t panic – there’s still time to get your house in order. The most important thing is that you understand what is required of you and when.
Firstly, you need to assess your current status and identify what changes are required. The next step is to ensure that ‘functional compatible software’ is in place. To qualify, the software must be able to record business transactions electronically and communicate directly with HMRC digitally, via an Application Programming Interface (API).
HMRC has reported that it’s working with a wide range of software suppliers to produce suitable software for businesses and their agents. It’s therefore important to ensure your selected software is approved by HMRC.
According to the ICAEW¹, nearly half (46%) of impacted businesses do not currently use accountancy software, with 13% solely relying on paper-based records. Obviously, for these organisations the required changes are vast and are likely to be complex and time consuming.
Many businesses surveyed (34%) have claimed that they will rely on their accountants and tax advisers to manage the changeover for them. However, this should not be misconceived as an easy and quick win as plenty of preparation time is still required.
It’s time to act
MTD isn’t going anywhere. It will continue to become a hot topic in tax and the urgency for compliance will become very real, very soon.
It’s important not to rest on your laurels and delay any action as implementing new systems, as well as reviewing your VAT data and processes, takes time and it’s best to give yourself the opportunity to test things well in advance of the deadline. This is also an opportunity to take advantage of any changes you need to make, to drive efficiencies and improve data and record management.
Need more help or advice?
In addition to answering your questions on MTD and what you need to do to be compliant, we also provide the following solutions:
VAT technical health check;
VAT data analytics.
For further information contact Clare Hawthorn:
¹ Source: ICAEW survey – icaew.com/groups-and-networks/local-groups-and-societies/london-ds/london-accountant/news/oct18-mtd