You will probably have heard that HMRC have issued plans to require businesses (including sole traders and rental income businesses) to file quarterly information instead of annually, as is the case currently. As a result, how businesses and some individuals in receipt of rental income interact with HMRC is changing.
Keeping your financial records will become increasingly digital and most businesses, the self-employed and landlords will need to use software or apps to keep business records – the days of manual record keeping will be over. There are exemptions, but most businesses will need to start planning for Making Tax Digital (MTD).
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For businesses and landlords with an annual turnover (not profit) in excess of £85,000, the start date for filing quarterly returns of their trading results was to be April 2019 but will now only be in respect of quarterly VAT returns as opposed to the originally planned purpose of filing all tax returns on a quarterly basis.
Who will it affect and when?
In respect of quarterly returns of trading results, the start date for all businesses has been put back to at least 2020. However, the change will still come and will be far reaching. Preparing for MTD will require a move from keeping manual records to finding suitable software or deciding if you would like 360 to help and manage your accounts digitally on your behalf.
What does MTD mean for your business if you are not yet using a digital software?
Well, HMRC are insisting on MTD compliant software being used to submit VAT returns from April 2019, which will allow HMRC to interact with the information provided in the VAT return. In reality it provides a real time view of your business’ financial position and HMRC hope this will improve the accuracy of information provided to them to prevent the loss of revenue to the Treasury. It also means that not only are your records submitted digitally, but the supporting information is also required to be stored digitally.
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What are the rules for business submitting annual VAT returns?
The MTD regulations for businesses on the annual VAT scheme are the same as for those on quarterly schemes except these businesses will still continue annually.
Will the government gateway still be open to file VAT returns after April?
The government gateway will remain open beyond April for historical information and businesses not yet affected by MTD (those who are VAT registered but with a vatable turnover of under £85,000 per annum) but HMRC expects all affected businesses to be filing through the new system for VAT periods beginning on or after 1 April.
Do purchase invoices need to be split into different VAT rates?
No this is wrong, if you buy a VAT book (zero-rated) for £100 and a print cartridge for £50 plus VAT on the same invoice (standard rated), you only need to digitally record the total net figure of £150 and the input tax of £10 that you are claiming. You don’t need to make separate entries for £100 and £50.
Is it acceptable to make one digital entry for purchases and sales based on a statement amount or payment total?
Many users of the cash accounting scheme post a single cash book entry when a supplier is paid, which might encompass 10 or 20 different purchase invoices, and the input tax claimed might be totalled on a calculator. From 1 April 2019, each invoice within the payment must be separately entered digitally, showing the net and total input tax figures (VAT Notice 700/22, para 3.3.3). HMRC claim this has always been necessary, although it has not happened in practice. The same outcome applies with sales, i.e. a digital entry must be made for each sales invoice.
Do retailers need to digitally record every sale they make?
The first stage of a retailer’s audit trail where MTD is relevant is the daily gross takings figure. So, for example, there is no need for a florist to digitally record every bunch of flowers he/she sells in their shop (VAT Notice 700/22, para 3.5).
There is no need for businesses which use a margin scheme to digitally maintain their second-hand stock book (VAT Notice 700/22, para 3.8). Flat rate scheme users do not have to record purchase invoices where they are not claiming input tax (VAT Notice 700/22, para 3.6).
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We have experience of using cloud-based software – we use it ourselves. If you would like a demo of the software, we use so you can decide whether it will be suitable for your business then please do not hesitate to contact us.
Alternatively, if you would like more information with regards to Making Tax Digital please get in touch with us by phone: 01482 427360 or email: firstname.lastname@example.org.