19 Feb Digitising Tax: The biggest change to the tax system for 20 years
What does it mean to me?
The phrases “Making tax digital”, “digitising tax” and “The Death of the annual tax return” are buzzing around at the moment and causing a bit of a stir. We’re regularly being asked: What does it all mean? And should I be worried?
Back in September 2016, I wrote a blog about Making Tax Digital (MTD) based on the initial literature. Things have changed a bit since then, but the following is still true:
THIS WILL AFFECT YOU
This will be so much of a significant change in the way small UK businesses report to HMRC, that I have tried to talk to anyone I can about it for the last year and a half. If your accountant isn’t talking to you about it, then you have missed out on some seriously crucial information.
In the last month, HMRC have released new information about how this will apply, so below I have listed some of the basics and at the end what could be the most significant impact to vets in practice.
In the last month, HMRC have released more on how this will apply. I have listed below some of the basics for all businesses and followed with some specific details on the impact to Vets in Practice.
The clock is ticking to get ready for this – blink, and it will be here, and you’ll be behind.
WHAT IS IT? (and what should I do?)
From April 2019 all VAT registered businesses will have to send their VAT returns directly to HMRC via their bookkeeping software. Continuing to use your PC version of Sage, or any other package that sits on one computer in the office or at home is just not going to cut the mustard. Next month, Sage will be starting a push to move older package users into a monthly subscription system to open access to online VAT filing. But this is not the cheapest, and not necessarily the best option on the market. The vast majority of Veterinary practices that I help use a traditional server / PC based version of Sage. All of them will need to convert to a new system.
- Be objective in choosing where to go next. Sage may not be the best product for you anymore. Be brave and talk to us at A4G about the different software options available to you. We have spent a long time reviewing the various packages out there, and have our own team dedicated to knowing what’s on the market.
Then from April 2020, all businesses will have to report their quarterly results to HMRC – irrelevant of if they are VAT registered. This is likely to include the key profit and loss items and the balance sheet as well as dividends and drawings from the business. In short, this means that your records will need to be correct every month, and turns any big year-end tax planning into shaky ground. Ultimately it could lead to a quarterly tax collection system. It is also likely to give HMRC more data to spot who they think is “doing a dodgy” with their year-end information.
- Get practising now! You probably only have four VAT quarters left before you have to submit “direct” under the Making Tax Digital (MTD) system. And possibly only eight quarters before HMRC start effectively gathering your businesses inside leg measurement each quarter. So get practicing and reviewing your quarterly data now, and start getting your advice regularly, not just at year-end. This is going to be vital for making sure your figures look right to HMRC in the coming years.
Your Practice Management Software might not be compliant!
Draft Legislation looks likely to impact the Practice Management Software (PMS) too. In a draft consultation issued in December 2017, HMRC discussed that all financial software should be integrated, meaning no manual data entry from one system to another should take place. I know a number of PMS packages already do direct upload to Xero, but the use of automatic links between PMS and bookkeeping packages is uncommon in my experience.
The draft legislation states that for all sales made, digital records have to be kept to record the following data:
- The time of supply
- The value of supply
- The rate of VAT charged
(source: click here)
All of which are recorded by the PMS, not the bookkeeping system. Further to this, the legislation states that “If a set of compatible software programs is used there must be a digital link between the pieces of software” as a rule with the “force of law”. In short, if your PMS can link to your bookkeeping, then from the 1st April 2019 it will have to be linked up properly. No more manual journals and imports.
As there has not been long to investigate this and we are awaiting the end of a consultation period on this piece of legislation, we are currently looking into the options and implications for practices. Subscribe to our newsletter and twitter page to stay informed as we find out more!
Partner @ A4G LLP
Veterinary specialist accountant and business adviser