The new regime will apply to all businesses that are currently registered for VAT. That is the case whether your company has a turnover above the mandatory £85,000 VAT threshold or whether you have registered for VAT voluntarily. It also applies to all types of business, including partnerships and the self-employed.
If you are not currently registered for VAT, then your business will see no immediate change in taxation. However, it is worth noting that VAT is just the first step in the government’s Making Tax Digital plans, and you should expect changes in areas such as income tax to impact on you in the future. Also, should your turnover go above the VAT threshold at any time after April 2019, you will have to adopt the new accounting system.
There are a few limited exemptions to liability for MTD, mainly around people running businesses who are considered ‘digitally excluded’, either because they live in remote areas with no regular access to broadband or due to disability.
The key change is that all VAT submissions will have to be made using software or apps that are able to connect directly with HMRC systems, automating much of the process. That means that eligible companies will have to get up to speed by adopting suitable software by April 2019. In practice, if you do your books through an accountant, this should already have been taken care of.
Other changes business owners need to take note of include the fact that paper records will no longer be considered satisfactory under tax laws – to remain compliant, you must maintain accounts in digital form of one type or another, thus enabling the submissions process to occur via ‘digital links’. What this means is that all tax data must be capable of being shared and distributed, either between company and HMRC or company and accountant, electronically. For the purposes of sharing data with your accountant, this can be in the form of a spreadsheet that can be emailed or even submitted via an external portable drive – as long as the information can be imported into a compatible software system.
Businesses may still have to keep records of original tax documentation required by law, depending on how the data is uploaded as a digital version. For example, if you receive an import tax certificate, you could manually type the information into a VAT compatible digital format, but would still need to keep the original. Some software platforms, however, will allow you to scan the original into the system – as a complete image of the original, there is no need to keep the paper copy.