For VAT registered businesses turning over more than the compulsory registration threshold of £85k, Making Tax Digital (MTD) became a reality in April 2019. Since this date, these businesses have been required to keep digital records and file VAT returns using MTD compatible software.
The next stage in the roll-out of MTD was due to come into effect in just a few weeks’ time. From April 2020, all other VAT registered businesses were due to have to follow suit, complying with MTD regulations irrespective of their turnover.
It’s only a temporary reprieve though, so if your business is one of those next in line, it makes good business sense to use this unexpected breathing space to consider your options and to plan for MTD anyway.
You might be registered but below the VAT threshold for a number of reasons:
- Perhaps registration helps to give your clients and prospects the right impression of your business by setting you apart from non-registered competitors
- Maybe at one time your turnover exceeded the threshold for compulsory VAT registration but has since fallen below it
- Or it could be that VAT registration benefits your business because your input tax regularly exceeds your output tax, allowing you to reclaim the difference from HMRC
Whatever the reason, if you’ve not done so already, you need to think about the implications MTD will have on your business and make sure you’re ready when a new deadline is announced.
However, with the government currently focused on making preparations for the UK to withdraw from the European Union, the introduction of phase two has been delayed.
How will MTD impact your business?
Let’s take a minute to remind ourselves what MTD will mean for your business once you’re obliged to comply.
HMRC will require you to keep digital records and file your VAT returns using MTD compatible software. If your business is currently keeping records using spreadsheets, this means you’re going to have to transition to a new, MTD compliant accounting system.
What should you do?
You have two options:
Option 1: Cancel your VAT registration
Ahead of any new deadline, you can opt to cancel your voluntary VAT registration by notifying HMRC. However, the fact that you opted for voluntary registration in the first place means that doing so is likely to leave you financially worse off. If this is the case, you’ll need to take professional advice from your accountant and weigh up the consequences of changing your VAT status against the time and cost involved in making your business MTD ready.
Option 2: Make your business MTD compliant
The good news is that if you’re currently managing to get by with spreadsheets, your accounts are probably very straightforward, so transitioning should not be a complicated process. What’s more, switching to a software-based solution will bring a range of benefits. You’ll spend less time keeping records, your system will be more resilient, and with an up to date overview of your finances always instantly available, you’ll be able to monitor your performance and tax liabilities in real-time.
Introducing a new system partway through a financial period is something to be avoided. Inevitably, it’s likely to result in some additional work and disruption, so it will need to be carefully planned in. If like many businesses and self-employed people, your year-end is 31st March or 5th April, you don’t have long left to implement a new system in time for the start of your new financial year.
Let Inca Help You Make the Right Decision!
If you’re voluntarily VAT registered and still using spreadsheets, you have an important decision to make. Submitting your VAT returns using Making Tax Digital compatible software will soon be compulsory. Should you cancel your VAT registration ahead of the MTD deadline – or is now the time to adopt a digital accounting software solution?
Inca can review your position and recommend the best option. If staying VAT registered is right for you, we can work with you to help you select and introduce an MTD compatible software solution into your business.