With January now firmly behind us (phew), there’s a new beast looming on the horizon: Making Tax Digital for VAT. Come April 1, the scheme goes live for most businesses with a taxable turnover above £85,000.
We wrote a blog post about the ins and outs and how businesses can prepare for MTD, but this time we’re taking a closer look at the digital side of things.
One of the big changes is that you’ll need to use some form of software to file your VAT returns. But just because things are changing, it doesn’t mean it has to be difficult. We’ve answered some of the most common questions surrounding Making Tax Digital for VAT software.
Why do we need MTD-software anyway?
One of HMRC’s justifications for MTD was to reduce user error – which often occurs from copying and pasting figures from a spreadsheet or application. One of the key features of the scheme is that it should eliminate this entirely by integrating the method you use to work out your VAT liability directly with their system. Keying in any entries is strictly forbidden!
What software do I need?
Well, it all depends. If you’re already using a leading bookkeeping product, such as our favourite, Quickbooks, then you’ve got it easy as it’s fully MTD-compliant and you won’t need to change a thing.
For everyone else, the government has produced an official list of software that will integrate with its own systems here. The list is huge (and keeps growing!), from programmes that already exist to those written specifically for Making Tax Digital, software for businesses or solely for agents, some with added whistles and bells, both paid-for and free.
There is a great deal of choice which can be overwhelming, so our advice is to do your research and work out how to use it before April rolls around!
Can I just use an Excel spreadsheet?
Yes and no. While you can certainly continue to log your transactions or work out your VAT liability via trusty old spreadsheet, you won’t be able to directly submit it to HMRC. But, there is a solution for you in the form of bridging software.
Bridging software provides a handy link between your spreadsheet(s) and HMRC’s platform – often in the form of a widget or add-on. At its simplest, it lets you select the relevant cells to be submitted to the tax office. It’s ideal for smaller businesses with relatively straightforward VAT dealings, and, paradoxically, larger businesses with multiple spreadsheets and overly complicated VAT returns!
The government’s approved list above also includes these types of bridging software.
I’m not great with computers. Are there any exemptions?
Yes. After conducting some research, HMRC found that a minority (around 15%) of people in the UK struggle to use digital tools for a variety of reasons. This group are referred to as ‘digitally excluded’, and mandated businesses can be exempt from submitting digital tax returns under the following circumstances:
- ‘Not reasonably practical’ due to age
- You have a disability that prevents or hampers you from using digital software
- You live in a rural or remote location (the assumption here is that you have sketchy internet access)
- Your religious beliefs are incompatible with the use of electronic communications
- ‘Any other reason’ (determined on a case-by-case basis)
Any exemptions must be applied for through the VAT helpline ASAP!
For more help with Making Tax Digital, drop us a line or email now.