With just four months to go until the new digital VAT regime goes live, HMRC has launched a major communications campaign to try and build awareness amongst small businesses affected by Making Tax Digital.

Aside from providing clarity around the issue of spreadsheets, the lack of education or guidance from HMRC has been the biggest complaint coming from accountants. Software suppliers and professional bodies have hailed the recent move as a step in the right direction.

However, questions raised show that there is still a huge knowledge gap, even within the accountancy profession itself. In October the ICAEW published research that showed over 40% of businesses that will be affected by MTD for VAT are not yet aware of it, despite the April 2019 deadline for its introduction.

In a recent survey conducted by Guilford Accounting, of which a number of respondents were clients of the firm who have already been made aware of MTD, 84% were aware of MTD but only 32% knew when it would affect them.

Campaign activity

The campaign started by HMRC with a tweet linking to a webpage entitled Making Tax Digital: how VAT businesses and other VAT entities can get ready.

We understand that HMRC is planning to increase its social media and public relations activity around MTD, and has also started to send a direct mail to all affected businesses. We statrted to receive these last week.

An HMRC spokesperson said: “We are starting to ramp up communication activity with businesses, initially with information to help them prepare for MTD and later how they can sign-up for the service."

Simplified guidance

The web page itself does not contain any previously unreleased information but simplifies the current guidance on how businesses should prepare for MTD for VAT.

It spells out the criteria for businesses that will be mandated to join the scheme (registered for VAT with a taxable turnover above the VAT registration threshold), but also encourages businesses with a turnover below the VAT threshold to sign up voluntarily “so they can also benefit from MTD”.

Spreadsheets and bridging software

According to the guidance, spreadsheets can be used to calculate or summarise VAT transactions to arrive at the return information needed to be sent to HMRC.

“If you use spreadsheets to keep business records, you’ll need MTD-compatible software so that you can send HMRC your VAT returns and receive information back from HMRC,” states the guidance. “The information must not be physically re-typed into another software package.”

It goes on to state that bridging software may be required to make spreadsheets MTD-compatible. Bridging software is HMRC’s term for a digital tool that can take information from other applications, for example, a spreadsheet or in-house record keeping system, and allows the user to send the required information digitally to HMRC in the correct format.

31 March 2020 deadline

Businesses will, according to the guidance, be given until 31 March 2020 to make sure there are digital links between their software products. Before that date, cut and paste will be an acceptable way to transfer information.

The exception to this is where return information is to be transferred to a software product enabled for an Application Programming Interface (an API provides a secure link between software and HMRC) and designed to submit the 9-box VAT return (such as bridging software). In those circumstances, the transfer of information must only be digital.

Available software

HMRC has confirmed it will publish details of the available VAT products later this year but a list of software companies currently working with HMRC to produce compatible VAT software is available on GOV.UK.

HMRC is currently working with more than 150 software vendors that have said they’ll provide software for Making Tax Digital for VAT in time for April 2019.

If you need further information about Making Tax Digital just let me know. Click here to see our own jargon free guide - A Small Business Guide to MTD. 

 

Noel Guilford