You might be surprised to find out that the UK government loses an estimated £9 billion in tax every year. This clearly indicates the flaws in the current tax collection system and is concerning; not least of all because of how much the UK government have had to borrow in order to give businesses support throughout the coronavirus pandemic and will have to find a way to recoup some of that spending. Thus, the HMRC announced the implementation of a new completely digitised tax collection imitative called Make Tax Digital (MTD). This was announced in 2019, and whilst businesses were originally given until April 2020 to implement the new system (the time they were given to implement the system is what we are referring to as the ‘soft-landing period’), this was extended to April 2021 in order to help businesses through the pandemic. This deadline is now fast approaching, so it seems a good time to fill you in on what you need to do before April 2021 so you can be VAT compliant.
What Does Make Tax Digital Entail?
Essentially, the government want the process of submitting tax returns to be completely digital. This does not just mean the submission itself, but also the gathering of the data itself. This means it will no longer be acceptable to copy and paste data (other than for the original creation) and send it off, the HMRC now want you to use systems that enable the recordings of your purchases to be recorded directly into your tax returns.
Up until this point, you will not have faced any penalties for failing to implement this form of tax reporting, but this is what is changing from April 2021 with the introduction of Making Tax Digital.
These ‘systems’ that you need to implement are called digital links. You will need to adopt these systems to be VAT compliant.
A ‘digital link’ is a transfer or exchange of data that can be made electronically between software programs, products or applications without the involvement or need for manual intervention.
From April 2021, the HMRC will now require automated digital links between any software program, product or application used in the process of preparing a VAT return.
This does mean that there will need to be a digital link from when a transaction is first recorded on a digital format all the way to the digital submission of the VAT return figures to HMRC. Fundamentally, you need to be able to establish a clear digital journey from data source to VAT return submission. This is the main aim of Making Tax Digital.
Need Help With Making Tax Digital?
If this seems like quite a daunting task don’t worry, you have a couple of options. Firstly, you could attempt to comply with the new regulations yourself. There are a few systems out there that you can get yourself and attempt to utilise. However, these can be difficult to use and you must ensure you get to grips with them before the deadline.
The other option, of course, is to use an accountancy service to ensure you are VAT compliant. You may still comply with the new MTD rules by sending your spreadsheets to an accountancy firm and letting them handle the issues posed by making your tax digital.
That’s where we come in.
J&P is a registered accounting firm in the UK. We have the qualifications and strength to help you plan ahead, so please do not hesitate to get in touch should you have any further questions about this policy, or if you need any help with submitting your VAT returns. You can contact us at firstname.lastname@example.org, on our social media, or give us a call on 0161 637 1080.