Making Tax Digital for VAT – more changes to come
HMRC’s Making Tax Digital (MTD) campaign began earlier this year with the introduction of MTD for VAT. The next phase of changes will have far-reaching consequences.
What’s happened so far?
VAT registered businesses with income above the VAT threshold (currently £85,000) entered the MTD for VAT regime in April 2019 – unless they had an exemption or deferral.
Under MTD for VAT, organisations keep digital accounting records and submit their VAT returns to HMRC digitally via a new online system.
Beneficial changes coming in 2020
It’s tempting to see more change as more hassle. On this occasion though, it’s an opportunity to turn something you ‘have’ to do into something that can give you a competitive edge.
Companies operating under MTD for VAT rules will, from 6 April 2020, be expected to use digital links to connect all the systems used to calculate their VAT liability and file their VAT returns.
A digital link is either:
- a data file that can be downloaded from one system and directly uploaded into another, without manually amending the file; or
- a software connection that allows data to be transferred directly from one system to another.
Using digital links will reduce the risk of errors from manual entry or manipulation of data. It will also give you a digital audit trail to help you respond to any VAT queries from HMRC. These are important efficiency and compliance benefits – but digital links can do so much more for your business.
Turn the changes to your advantage
Connecting data digitally has huge benefits for business planning, management and forecasting.
Well thought-through digitally linked systems reduce manual data entry, manipulation and collation for reports. Spending less time pulling data together gives your more time to act on the insights provided. These can insights help you make better business decisions, manage costs and improve how you operate.
Linked information is easier to analyse as you can drill down into the data to find answers quickly. Robust links reduce the need for manual data tasks that can introduce errors, so you can have confidence in the data.
Some businesses may also benefit from creating digital links with suppliers and customers. Being ‘digitally enabled’ will put you in the best possible position to achieve this, helping you to build and maintain strong business relationships.
Choose a scalable solution
Creating new links between systems each time your tax or regulatory obligations change can be costly. As a strategy, it enables you to comply, but it may not offer any added value.
Many small and medium sized businesses are using off-the-shelf web-based technology to get ahead. Choosing software products that can be digitally linked, they are creating scalable systems that improve business performance and can evolve to comply with future regulatory changes.
Recent growth in software development means there are plenty of software options to choose from. Modern software also tends to provide options for customisation. This means it’s possible to find a good fit for your business that has been tried and tested, without spending a small fortune on software programmers.
For help with MTD for VAT, please contact Jane Spraggs.