Is Complying with Making Tax Digital a Bridge Too Far?
If complying with Making Tax Digital for VAT seems like an impossible task, we unravel the reasons why it really isn't that bad
From the 1 April 2019 certain VAT registered businesses needed to start complying with HMRC's Making Tax Digital (MTD) for VAT. This means they must store their business records digitally and demonstrate an electronic audit trail from source data to submission of VAT returns. If businesses don't comply, they are likely to initially face a rap on the knuckles then later a fine from HMRC.
Going digital may seem like a big change to some but is it really as daunting and unworkable as some businesses and agents perceive? We think not and here's the reasons why...
A vast number of businesses who need to comply with MTD for VAT already store their business records digitally in an accounting package such as Sage. It is likely their accounting software is already MTD for VAT compliant so other than coughing up a little more money for an addon or module to submit VAT returns, it's all systems go!
For businesses whose accounting software isn't MTD for VAT compliant (because the person or business who developed the software has long since disappeared) then it is likely bridging software (see below) will need to be used.
Businesses that use spreadsheets such as Excel to record their business records will need to use bridging software to comply with MTD for VAT. The bridging software sits between the spreadsheet and HMRC and provides the mechanism to submit VAT returns digitally. Some bridging solutions can also be used to submit returns for businesses that use non-MTD for VAT compliant accounting software - as long as that software can export VAT figures into a spreadsheet or other format such as CSV.
Our own software, Easy MTD VAT, is a great example of bridging software. It provides a simple and cost-effective way for businesses who use spreadsheets and non-MTD for VAT compliant accounting software, to submit VAT returns digitally in just a few clicks. Developed for Windows, it not only submits VAT returns from as little as £0.99, it also allows VAT obligations, liabilities and payments to be viewed for free.
But, what about the significant number of businesses that use a paper-based accounting system? How do they comply with MTD for VAT? In this instance things are a little more complicated and we would agree the process of complying may seem like a bridge too far. However, there is a relatively simple solution for businesses in this predicament... Use a spreadsheet to replicate the paper method of recording business records then use bridging software such as Easy MTD VAT to submit VAT figures to HMRC.
MTD for VAT presents a small change for some and a huge change for others, but in an age where many aspects of life and business are digital or going that way, we think MTD for VAT is a step in the right direction by HMRC.
We suspect businesses and agents who are opposed to the change were equally opposed to moving from paper VAT returns to submitting VAT figures using the HMRC online portal - the very method they are now having to give up and the method they have likely grown to like (or at least tolerate). We're certain, in time, the perception of MTD for VAT being a bridge too far will disappear, and keeping business records and submitting VAT returns digitally will become a welcome norm.
We can't conclude this article without mentioning the teething problems HMRC and users continue to experience with MTD for VAT. We've witnessed firsthand, issues with the sign up process and problems retrieving VAT data and submitting returns to HMRC. These issues are compounded by HMRC's slug-like response and resolution times - perhaps forgivable considering the number of users they are dealing with. Like any new technology venture, problems arise and it takes time to iron them out. We suspect (hope), however, in months to come, MTD for VAT will have settled down and we'll be wondering what all the fuss was about!