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ShopfloorShopfloor DEALER PROFILE: KNEES HOME AND ELECTRICAL ADAM BERNSTEIN: RETAIL EXPERT Tax: Reporting for duty 42


By the end of March, UK businesses will need to have prepared for what many consider to be the biggest change for years in how they deal with HMRC. The changes, which will affect every single transaction a business makes, come from what HMRC calls Making Tax Digital – MTD – and it’s clear that independents are most at risk.


ason Piper, senior manager for tax and business Law at the ACCA, an accounting body, says that it has been around four years since the then minister, David Gauke, announced plans for Making Tax Digital. Says Piper, “the underlying goal is to transform the whole UK tax system, both HMRC’s internal IT infrastructure and the way that taxpayers engage with it.”


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But there have been problems with the MTD rollout which were compounded by unprecedented political developments. The result is that the initial plans to force virtually all businesses to keep their records for profits taxes digitally from 2018 were abandoned; now all but the barest bones of MTD have been put on hold to free up resource for Brexit.


The impact on firms From April HMRC will have MTD in place for VAT for all businesses above the compulsory registration threshold of £85,000. Income and Corporation Tax will follow at some point. For VAT, MTD alters how the online filing


process works and makes a huge change to how businesses prepare for that submission. HMRC’s existing web portal will close for MTD filers and instead they’ll need to use specialist software to create and submit their return. “But the biggest, unprecedented, change,” explains Piper, “is in how much control HMRC’s processes will have over how you run your business. Under online filing, you submit your VAT return to HMRC in their prescribed digital format so it’s easy for them to process. But you’re in control of how the records are kept that help you work out the nine numbers you need for the return. Under MTD, it’s not just how the nine figures reach HMRC that’s legally regulated; it’s


how they’re calculated, and the format (electronic) of the records that support it which is laid down in law.” In essence, he says that every transaction will need to be recorded digitally (so on a spreadsheet or in accounting software) and those records have to automatically drive the return calculation. There are some exemptions to the scheme, but the bar to clear is very high. These include being a (serious) member of a religious order that shuns technology, having no or poor internet coverage, or where the change would have a hugely disproportionate negative financial effect on the business.


Action to take now Piper says that the first step is to consider how records are presently kept and what changes need to be made to comply. If the business already uses an accounts


software package then it will probably support MTD filing and record keeping – the key is to check without delay. Note that some suppliers are asking customers to move from desktop licenses to cloud subscription services which will be far more expensive.


“If you don’t use any digital tools,” says Piper, “then you’ll need to start, and quickly do your own research to find a suitable product.” There may be an official HMRC tool, but businesses might do better to search out resources that accountants use. In the meantime, HMRC has a list of compatible software at https://bit.ly/2IsxUsC. HMRC has said that it will give businesses until


31 March 2020 to make sure there are digital links between software products. Before then, ‘cut and paste’ will be an acceptable way to transfer information. Spreadsheets will still be fine for the basic record keeping, Piper advises, “but you’ll need access


But the biggest, unprecedented, change, is in how much control HMRC’s processes will have over how you run your business.


to a filing package as well, known as ‘bridging software’. An alternative is email a spreadsheet with all your records (in the right format) once a quarter to your accountant. Their software could do the rest, but it’s likely to cost more than the current equivalent.”


MTD is not going away and it will disrupt how a business copes with, and reports, its VAT. Those that don’t prepare will find themselves sitting on a cliff edge once the present online portal closes. The answer is to prepare now.


The Retra view


Howard Saycell, chief executive of Retra, says the body has been providing advice and help on this to the membership for some months. In contrast to the accounting bodies he seems relaxed – he reckons that most will be fine with the changes but acknowledges that some will have difficulties submitting their returns.


Says Saycell: “We’ve suggested members speak to their accountants and as long as they have the right software package it does appear to be quite straight forward.”


Looking beyond VAT to the other taxes, he thinks that “once VAT has moved to the new reporting system we will then know of any likely pitfalls as other taxation moves across.”


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