HMRC is introducing a fundamental change to the way in which VAT returns are being submitted from April 2019.
The original HMRC plan – known as Making Tax Digital (MTD) – was to require all businesses to digitally submit accounts information at least four times per year from 2018. Following intense lobbying from farming groups and the accountancy profession, these plans were delayed until 2019, and would affect fewer businesses.
Some changes have already been phased and more will follow from April 2019...
From April 2018
There will be voluntary pilot schemes:
VAT registered businesses can report quarterly data to HMRC using “functional compatible software” and will have to maintain digital records to provide an audit trail to support the figures filed.
Other businesses and individuals, e.g. businesses with turnover under the VAT threshold or property landlords, can submit tax return information on a quarterly basis.
From April 2019
VAT registered businesses – individuals, partnerships and companies - will be required to submit VAT information using “functional compatible software”. HMRC have confirmed that keeping records on a spreadsheet is acceptable, provided there is a digital link to the software used to submit the VAT return.
The key point here is that manual records - no matter how detailed or accurate – will not comply with the new legislation.
The first VAT quarter starting on or after 1st April 2019 is the first return that needs submitting under the new system. The deadline for digitally filing the VAT return remains five weeks after the end of the VAT quarter.
Businesses who are voluntarily VAT registered, e.g. those with turnover under the VAT threshold (currently £85,000), will not come under the new system. However, bear in mind that HMRC are consulting on whether to reduce the threshold from 2020 and a figure of £40,000 has been mentioned.
There are three other groups of people who will be exempt from these requirements, but these are unlikely to apply to many farmers:
Members of a religious society whose beliefs prevent the use of computers
Disability or location of the business makes it impractical to use digital tools
The business is subject to insolvency procedures
Also from 2019 other businesses will be able to submit quarterly information to HMRC - business income and expenses or property rentals for example – on a voluntary basis.
From April 2020
This is the earliest date that all taxpayers will be required to submit regular information to HMRC for income tax purposes. For most businesses this will mean quarterly submissions, but more frequent returns can be made, e.g. where monthly VAT returns are prepared. HMRC has committed not to do this until it is satisfied that the software and systems can be shown to work.
The original plan was that partnerships would have to make a minimum of five submissions each year. In most cases this will be four returns during the year to coincide with VAT returns and a final submission after the end of the year once the accounts have been prepared. HMRC has said that the in-year submissions do not need to be full accounts, i.e. they do not need to include stock, private use adjustments, capital allowances, etc. This means the final taxable profit could be massively different to the figures submitted in-year.
HMRC has been keen to stress that the payment dates for tax will not change when MTD is implemented. This means that the figures declared on the in-year returns, including the allocation between partners, does not matter too much. However, it would not be too much of a surprise if quarterly payments of tax were introduced in the future.
What do I need to do?
In essence, farmers fall into two categories. If you use computer software to help run your business, you need to check that your current system is “functional compatible software” and will be able to submit VAT returns under the new system. Accounting software has made great strides in recent years so it may be that now is the time to upgrade to a system that will help provide better information for you to run your business.
If you do not use computers, and are not keen to learn, then you need to get a family member or a third party to help you. Whilst HMRC are saying they want to help businesses adapt to the new system, they will have the power to impose penalties on anyone who fails to comply!
For more information or advice on becoming compliant with the upcoming HMRC changes, call Jonathan on 01228 690000 or email using the link below.
