Benjamin Dyer, CEO of Powered Now, explains that Making Tax Digital involves you now if you are VAT registered, and if not, it soon will.
Even though HMRC has been telling businesses that it’s the law and the deadline is on us, many electricians still don’t know about Making Tax Digital (MTD).
MTD is the program to drag HMRC and businesses generally into the 21st Century.
In this article, I’m neither supporting nor opposing MTD. Instead, I will try to take a pragmatic look at how to comply with the law.
It’s worth noting that people ignoring MTD will be fined, although HMRC promise to go easy on offenders that genuinely try to make it work.
The requirement for an electronic audit trail
MTD means that VAT-registered businesses now have to keep full details of their costs and sales on a computer.
This will also apply to companies with sales over £10,000 per year from either April 2020 or shortly after depending on HMRC’s final decision. So, everyone will soon be involved.
The deadline for VAT
For all VAT periods starting on or after April 1st, 2019, submissions from VAT-registered businesses must use the MTD electronic portal for their submissions.
There are a few exceptions, but the only relevant one for small to medium sized electrical contractors is if you are on annual VAT – and this only puts the deadline back by six months.
The eventual impact
A lot of legislative changes create costs and MTD is unlikely to be different.
The other side is that it is easier and cheaper to manage a business on a computer than from bits of paper.
However, there’s some learning first, so in the long-term, the impact is likely to be mixed.
Complying with MTD
The most important point is that VAT-registered electrical businesses must make sure their individual sales and costs get into some sort of system with an MTD for VAT interface.
Manually adding up your sales and costs won’t do. Putting figures into the nine-box HMRC web form won’t be allowed for VAT periods starting on or after April 1st, 2019.
There are several ways that you can comply:
- Send full details of all sales and costs to your accountant who puts them into their accounting system. If you already use an accountant for your VAT return, the only thing that may change is the cost.
- Use an accounting system under your own control, which hopefully will be MTD compliant.
- Implement a system designed for electricians and which supports MTD for VAT, like that from my company, Powered Now.
Some businesses have very complicated VAT affairs. For them, HMRC have allowed spreadsheets to be used to calculate the VAT return with the results being “cut and pasted” into “bridging software” that can submit an MTD for VAT return.
It’s important to note that this is only allowed for 12 months.
Some accountants have latched onto this concession and are advising the spreadsheet route to comply with MTD for VAT.
The problem is that it only delays proper compliance. Moving again will probably clash with complying with MTD for Profit and Loss.
This would mean implementing MTD for VAT twice, the second time probably at the same time as further work. It’s a bad idea.
The potential silver lining
There can be major benefits from using a system to run your business and these include:
- Doing VAT returns, CIS returns and passing information to your accountant all automatically.
- Quickly producing quotes and invoices. This can be done directly from site, with less effort and to a higher professional standard. VAT on invoices, totals and CIS are all done automatically.
- Documents can be quickly and easily emailed or texted while being cheaper than stamps and paper.
- Having expenses available means you can see the profit from individual jobs.
- Having all information in one place automatically means you can find things and be better organised.
Nobody likes regulation, and it’s hardest of all on smaller businesses. However, few people would argue we shouldn’t have speed limits, so all regulation isn’t bad.
The jury is still out on MTD. It will undoubtedly be a pain the short term, but it is possible it will help make paperwork easier in the long run.
Time will tell and I wish you the best with your compliance.
For more information on Powered Now, visit: www.powerednow.com.