Marking the first stage of the government’s ambitious Making Tax Digital plans, from the start of next month all VAT reporting will be handled electronically and online. What this means in practice is that all businesses with a turnover above the £85,000 VAT threshold will have to start using compatible software to record and submit their VAT information to HMRC online.
Most major digital accounting platforms – certainly those offered as cloud-based services – have been working with HMRC to add online submissions capabilities to their list of functions. The upside for businesses is that much of the VAT returns procedure can now be automated – digital accounting services will extract and log the relevant tax information from invoices and bookkeeping records, and send details to HMRC as required.
Yet despite being four years in the offing, with just a matter of days to go until the switchover, there are still concerns that many businesses are not ready. A poll of its members by the Federation of Small Businesses (FSB) suggests that as many as half of SMEs are not yet compliant, with a quarter having not even started the switch-over process.
The FSB is therefore urging the government to take a ‘light touch’ in enforcing the new rules as many businesses scramble to fall into line. The trade body also pointed out that one of the stumbling blocks for its members was the cost of upgrading or signing up to a compatible accounting service, reporting an average cost of £564.
But with no indication about how the new rules will be enforced, many businesses that are still not ready for digital VAT will want to get compliant as soon as possible to avoid potential penalties for late filing.
The most straightforward way to get your business ready for VAT is to sign up for one of the aforementioned accounting packages. The Gov.uk website includes a search tool linked to an extensive list of all platforms currently compatible with the HMRC system.
The government’s preferred approach is to get all businesses using complete accounting platforms, which will automatically be compatible with future stages of the Making Tax Digital roll out, such as the plans for Income Tax mooted for next year.
But aside from the cost, many small businesses may simply not be ready to switch the entirety of their accounting and bookkeeping over to a digital system, certainly not in time for the digital VAT switchover. The government has therefore also approved the use of so-called ‘bridging’ software, which can extract VAT data from spreadsheets and submit it to HMRC.
Still have concerns about being compliant with digital VAT? Get in touch with our small business accounting team today. Our team have experience in all cloud platforms approved for use under the new scheme. We can get up and running with tax compliant digital accounting software quickly and painlessly.