It’s not long until tax goes digital, yet HMRC’s new scheme is clouded with confusion. Katie Powell of Sage separates fact from fiction for retailers.
Come April, the way UK businesses submit VAT returns will change – and some companies are not ready for the switch.
There is still confusion around Making Tax Digital (MTD), concerning who it applies to, when it will start and what it means for retailers.
To bring clarity to HMRC’s new programme, we’ve dispelled the five biggest myths and highlighted the benefits for your business.
Myth 1: It won’t affect many businesses
Wrong. In fact, 89% of UK businesses will be impacted by MTD and have to change the way they keep records and process VAT returns.
“89% of UK businesses will have to change the way they keep records and process VAT returns”
If your business has a taxable turnover of £85,000 or above and is VAT-registered, you will have to adhere to MTD.
Note: some businesses will be exempt from the scheme. It’s worth checking with HMRC to see if your business fits into this category.
Myth 2: This will be delayed because of Brexit
While it’s true that two of the biggest issues to affect UK businesses in recent times are taking place around the same time, MTD will definitely be going ahead from April 1, starting with the VAT element.
There have been calls from various institutions asking HMRC to delay the programme, but it has confirmed that MTD will not be postponed.
While VAT will be the first element of MTD, self-assessment, income tax and corporation tax will all follow in the future.
Myth 3: Digitising tax comes at a cost for businesses
The opposite is true here. Sage’s research found that a move to digital accounting can enable businesses to save £17,000 per year.
Additionally, by using accounting software, retailers can be more efficient when it comes to dealing with admin and can focus more time on revenue-generating activities.
“Sage’s research found that a move to digital accounting can enable businesses to save £17,000 per year”
Myth 4: It doesn’t start until October 2019
MTD starts from April 1. However, around 3.5% of businesses will have a deferred start of October 2019.
If this applies to your company, you should have received a letter from HMRC highlighting this.
If you believe your business should be deferred and a letter has not arrived, we advise you to get in touch with HMRC immediately.
Myth 5: The Government has launched MTD to catch businesses out
Incorrect. The government is implementing MTD to benefit businesses and to help them – and HMRC – be more efficient.
Inaccurate submissions result in £9bn in tax being lost on an annual basis, most of which is likely due to manual errors.
HMRC understands that businesses want to get their tax returns right and MTD will support that happening, leading to correct payments being made.
How you can prepare for MTD
Now you know the reality of MTD, it’s time to act:
- Speak to your accountant, if you have one, along with experts about the steps your business needs to take.
- Confirm whether MTD applies to your business and assess which of your processes might need to change. Do this by reviewing the current processes you use to submit your VAT returns.
- Sage has been helping businesses with compliance and legislation for more than 35 years, and we are here to help retailers digitise tax. Visit our Making Tax Digital hub for the latest advice to help your company prepare for HMRC’s VAT changes.