Businesses in the UK can expect a major change in the way they file their VAT returns starting in April 2019. Under the new system, you will be required to keep digital records of your accounting and tax information for the entire financial year. For businesses that are used to keeping records offline, this transition can be quite challenging.
Fortunately, HMRC has launched a testing phase to allow businesses to try the new system and iron out any kinks in the process. In this phase, business owners can register and try submitting VAT returns with MTD compliant software.
In this article, we will look at some of the reasons why you should consider being a part of the MTD pilot, the criteria for registering, and how to get started.
Why should you be a part of the pilot program?
According to HMRC, there are about 1 million VAT-registered businesses in the UK with an annual turnover of at least £85,000. If you fall under this category, being MTD compliant will be mandatory for you starting next year. In the meantime, here are a few reasons why you should consider being a part of the MTD for VAT pilot.
Businesses that fail to comply with MTD will be given penalty points. The penalty points will accumulate based on how late the businesses file their VAT and how many late submissions they’ve made. If you put off paying your penalties, you will end up paying even more because of interest on penalties.
Taking part in the pilot will allow you to get used to the new system before HMRC swings into full enforcement. If you avoid the last-minute scramble to get MTD compliant, you’re less likely to run into delays (and the corresponding penalties) on your first tax submissions.
Prepare for change
For businesses that are already using an online accounting system, the transition will be pretty smooth. If you keep your records offline using a legacy spreadsheet system or a similar offline tool, then it will take quite a bit of work to become MTD compliant. In addition to finding MTD compliant software, training your staff, and transferring all your records, you also need to get used to the new method of submitting your VAT returns.
With the MTD pilot, you can set everything in place way ahead of schedule, so that your business is fully ready by the time MTD is implemented. Moreover, since there will be relatively few of businesses in the pilot, you’re likely to get better support from HMRC if you need assistance while you’re adjusting.
Be an influencer
The purpose of the MTD pilot is to get feedback from business owners and address possible pain points that they may face. HMRC will be paying attention to your experience with the new system and how you feel about the process, and you may even be able to shape how the system works.
Who is eligible to apply?
Sole traders or business owners submitting VAT for a limited company may apply, as long as they are up to date with their VAT and use a standard accounting period.
Once you are part of the pilot, you will be required to use Making Tax Digital compliant software to file your VAT returns.
Who is not eligible to apply?
If you fall under any of the categories mentioned below, then you are not eligible to be a part of the pilot at the moment:
- If you are part of a VAT Division
- If your business is based overseas
- If you are a trust
- If you are a nonprofit organisation that is not set up as a company
- If you submit annual returns
- If you make VAT payments on account
If you pay VAT through Direct Debit, you will be unable to sign up during the 15 working days just before your VAT submission date or the 5 working days immediately after you submit your VAT.
Businesses with more complex requirements would have received a letter from HMRC stating that they have 6 more months to prepare for MTD. These businesses can continue using existing methods to file their VAT returns for all periods until the 1st of October, 2019, unless they voluntarily choose to take part in MTD before this date.
The pilot program is expected to be open to more businesses.
How do you get started?
If you are eligible, there are two steps to get started.
If you use offline tools to keep your accounting and tax records, then you will need to choose MTD compliant software that is right for your business. Here’s a list of accounting apps that are MTD compliant. If you use software already, then make sure you can use it in this pilot.
Going forward, you’ll need to use software to keep your financial records, prepare your upcoming VAT returns, and submit returns to HMRC. You can view your next VAT return deadline in your Business Tax Account through the HMRC website. You can also choose to have your agent submit VAT returns on your behalf.
Source: * Article Source: https://www.gov.uk/guidance/use-software-to-submit-your-vat-returns