At the start of this financial year, the government began the phased process of introducing Making Tax Digital (MTD), with the aim of having all businesses compliant in two years.
MTD is now a reality for owners of VAT registered businesses turning over more than £85k. These are the first businesses to have to conform with the new rules which require them to keep digital records and submit their VAT returns using MTD-compatible software from 1st April 2019.
Very soon, all businesses will need to comply with MTD. Next in line are VAT registered businesses turning over less than £85k which have to be compliant from 1st April 2020 – followed closely by all other businesses which are likely to have to file returns and other documents electronically from 1st April 2021.
The nature of your business will determine the date by which you need to be MTD compliant, but with the government’s Making Tax Digital campaign in full swing, bombarding business owners with messages telling them to plan and prepare for the change, you might be tempted to rush into formally registering your business for MTD as soon as possible.
But hold your horses.
While your business must maintain digital records from the deadline your given by HMRC, you don’t necessarily have to sign up to MTD by this date.
Registering for MTD is not a condition of compliance, and may be best left until a later date, because in some circumstances, registering too early could cause you problems.
From the moment you sign your business up to MTD, all your VAT returns will have to be submitted to HMRC using MTD-compatible software – and you will no longer be able to file returns through any other channels you might have been using up to this point.
Let’s assume your business is in the second wave and due to be compliant from 1st April 2020. While you should certainly be planning for MTD by ensuring your digital record keeping is fully compatible with the new requirements – or introducing an MTD compliant software system if you’re still using spreadsheets, you shouldn’t rush into formally registering.
If you’re over keen and register now, you’ll have to start filing digitally 12 months earlier than you will need to if you hold fire.
Even if you leave registering until 1st April 2020, you could make life more difficult for yourself than it needs to be. The first VAT return you will be required to submit digitally will be for the first quarter of 2020, and you won’t normally file this until late July or early August. But if you register for MTD on 1st April 2020, HMRC will expect your VAT return for the quarter ended March 31st 2020 to be submitted via MTD software.
You might think you’re doing the right thing by registering early, but if your business isn’t fully prepared for MTD, you could bring real difficulties on yourself. If you don’t have the technology and processes in place, you’re likely to struggle with filing your return and paying what’s due on time, unnecessarily exposing your business to the risk of fines or penalties from HMRC.
Inca Can Help You Time Your MTD Registration Perfectly!
At Inca, we’re helping many small businesses get MTD-ready: assisting them with the selection and introduction of a digital accounting system, providing training, and supporting them as they make the transition.
While it’s essential you prepare your business so it’s ready to move smoothly into Making Tax Digital when it has to, it’s also crucial you take advice on getting the timing right for registering.
We can clarify the definitive deadline by which your business must be MTD compliant – and crucially, we can advise the best time to register so your transition to Making Tax Digital causes the minimum disruption to your business.