The journey so far with making tax digital
Making tax digital has been in various debates over several months. HMRC’s argument is that modernizing the tax system would make it more efficient and effective. They also believe digital tax records would help to reduce the tax gap.
The tax gap is the difference between the amount the taxpayers owes HMRC from tax and the actual amount received in the year.
However many professional bodies through representation all stated their worries on the implementation of these plans.
Going on forward with making tax digital
It was a relief when it was announced on 13 July 2017 the plans that would be used for implementation.
Plans and Road Map to making tax digital
- Some businesses have already started private and small-scale testing, giving HMRC update on progress.
- There would be a wider autopilot test by more businesses to ensure that HMRC understands the system in Spring 2018.
- Businesses that have a turnover that is over VAT threshold would be required to join in Spring 2019.
- Making tax digital is expected to affect every business including the small ones in Spring 2020
Consequence of making tax digital
- Business would have to keep their record digitally for VAT purpose only
- Business would have to provide their VAT return to HMRC through making tax digital functional compatible software rather than HMRC portal.
- HMRC would sanction business for failure to keep or preserve digital records.
How to plan for making tax digital
The plan is not to ignore these changes but to ensure you put in place a software that is a functionally compatible software. A functional compatible software must have the following characteristics:
- It must be able to keep records in a digital form as required by the regulations.
- This software must be able to preserve digital records in a digital form as required by the regulations.
- It has to be able to create a VAT return from the digital records held in functional compatible software and provide HMRC with this information digitally.
- The business must be able to provide HMRC with VAT data on a voluntary basis.
- Able to receive information from HMRC via the API platform in relation to a relevant entity’s compliance with obligations under the regulations.
- Also, this digital records must be kept for 6 years within the compatible software and even if a business de-register for VAT, the business would still have to keep the record for the 6 years.
What Digital record required for making tax digital
The following are the information are required:
- The business name, principal place of business, vat registration number information about which vat accounting schemes are used.
- Vat account that would show the output vat and input vat and any adjustment.
- The business would keep day to day transactions that make up their income and expenditure for the business.
Conclusion on making tax digital
Deferring the plans by HMRC were meant to help business get ready for making tax digital. So I would advise you to take steps to make ensure that you are prepared for making tax digital.
If you would like support on making tax digital, kindly contact us and we would support you in implementation of making tax digital or to read more http://www.gov.uk/government/consultations/making-tax-digital-reforms-affecting-businesses/making-tax-digital-for-vat-legislation-overview
