30 October 2017
Last month HMRC published some overview notes of the draft legislation intended to govern Making Tax Digital (MTD) for VAT, which will now form the vanguard of the process to digitise tax in the UK.
Enabling legislation (a scant door opening process) is contained in the current Finance Bill and secondary legislation (statutory instruments which are not subjected to full Parliamentary scrutiny before becoming law) is intended to follow. Whilst this shabby process is likely to result in poor quality legislation in which HMRC are judge, jury and executioner, in this blog I’m concentrating on HMRC’s intention.
There’s a temptation to think that VAT registered businesses already make electronic quarterly reports to HMRC and so little will change when MTD is introduced. But the overview from HMRC refers over and over to “Functional Compatible Software” (FCS) in relation to MTD.
This FCS must be used to maintain digital records, to create and file a VAT return with HMRC through its APIs, and to receive information from HMRC through those same APIs.
Think about the last VAT return you filed. Did you simply verify the data in your accounting package(s) and then press a button to file the information with HMRC? Or like many of the owner-managed businesses we encounter, was there more to it than that?
- Perhaps you take the figures and key them into the HMRC portal?
- Or make manual adjustments before doing so?
- Maybe you need to get information from two systems, and manipulate it in a spreadsheet first?
- Or maybe it’s even more complex than that…
In HMRC’s brave new world, none of this will meet the benchmark for FCS and so none of it will be MTD compliant.
MTD for VAT is intended to become mandatory for VAT periods commencing on or after 1 April 2019. Whilst that seems a long way off, redesigning and implementing your accounting systems to comply is bound to take some time, and 17 months will soon pass.
At UHY Hacker Young we’ve been rolling out systems and processes review and recommendation packages for the last 12 months, focusing on the use of technology to both improve efficiencies and streamline working practices and also to prepare for these compliance changes on the horizon. To find out more about how these can help in your business, contact your usual UHY adviser or fill out our contact form here.