Get prepared for making tax digital presentation
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The document discusses Making Tax Digital (MTD) in the UK. It covers: 1) MTD aims to make the UK one of the most digitally advanced tax administrations in the world by requiring businesses to maintain digital records and file tax returns digitally. 2) From April 2019, VAT registered businesses with over £85,000 turnover must maintain digital VAT records and file returns quarterly using compatible digital software. 3) The future of MTD is uncertain beyond 2020 but it may expand to other taxes. Compatible digital software must digitally link to HMRC and allow automated record keeping and filing of tax returns.
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Get prepared for making tax digital presentation
- 2. Making Tax Digital (MTD) To be “one of the most digitally advanced tax administrations in the world”
- 3. MTD: Past Applicable to all businesses, including buy to let properties, with a turnover >£10,000 to: • Maintain their accounting records on digital software • Including taking pictures of receipts • Filing of business tax and VAT returns at least quarterly and directly through software • With effect from 5 April 2018
- 4. MTD: Present From 1 April 2019* VAT registered businesses with a taxable turnover >£85,000 must: • Maintain their VAT records digitally • File VAT returns directly through software • That’s it… On 16 October 2018 HMRC announced a 6 month deferral for specific entities, most notably VAT Groups. HMRC *
- 5. MTD: Future • No further MTD legislation until at least April 2020 • Could the original proposals be resurrected? • No one knows!
- 6. Making Tax Digital for VAT (MTDfV) • Who • What • When • Where • Why
- 7. MTDfV: Who All VAT registered businesses with: • Taxable turnover above the VAT threshold of £85,000 • Those below the threshold can join voluntarily • Once in MTDfV there is no way out • Exemptions? As per existing VAT legislation
- 8. MTDfV: What • Business must retain a record of specific information ‘digitally within functional compatible software’ • About you: Name, address, VAT no. and schemes • About each transaction: • Functional compatible software must: Time of supply (tax point) Value of the supply (net value excluding VAT) Rate of VAT charged Record and preserve digital records Provide to HMRC information and returns from data held in those digital records by using the API platform Receive information from HMRC via the API platform
- 9. • MTD: What is functional compatible software? • Manual Records • Spreadsheets • Software • Cloud Software x ? ? P
- 10. • MTD: What else? HMRC acknowledge situations where calculations will have to be made outside of software: • Margin Schemes: No requirement to keep additional information digitally • Retail Schemes: Keep a record of Daily Gross Takings (DGT) • Flat Rate Schemes: Keep a record of capital expenditure • Limited Cost Trader: Not required to keep details of relevant goods
- 11. MTDfV: When The first VAT return period commencing after 1 April 2019: Return Period Start End Filing Date* Month 1 April 2019 30 April 2019 7 June 2019 Quarter 1 April 2019 30 June 2019 7 August 2019 Quarter 1 May 2019 31 July 2019 7 September 2019 Quarter 1 June 2019 31 August 2019 7 October 2019 except large payers whose filing date is the end of the month after the return period *
- 12. MTDfV: Where HowMTDfV: Where
- 13. MTDfV: Digital links • An electronic data exchange between software systems • Linked cells in Excel where formulae reference another cell • Email of spreadsheet to accountant to carry out submission • Transfer of digital records on a memory stick or flash drive • XML, CSV import / export or download / upload • Cut & Paste • Speak to your software provider • (until 1 April 2020)
- 14. MTDfV: Bridging software Non API software / Accounting Ledgers VAT return prepared in spreadsheet Bridging Software HMRC Digtal Link (Cut & Paste?) Digital Link API
- 15. MTDfV: Why • HMRC: To improve the accuracy of your VAT return • UK Govt: Efficiencies from software will increase productivity
- 16. Recap • No changes to the VAT return itself • VAT return must be submitted via API • VAT registered business with taxable turnover >£85,000 • First VAT return commencing on or after 1 April 2019 • Deferral to 1 October 2019 for VAT Groups • Contact us if you require assistance • Digitalisation is positive
- 17. Cloud Software
- 18. pkf-francisclark.co.uk What is the cloud? Cloud technology is simply to host, or store, data remotely rather than on a machine at your premises
- 19. pkf-francisclark.co.uk Cloud Accounting Ready for Making Tax Digital… • Make business decisions based on real time information: • Dashboard summaries / management accounts • Tax planning advice based on your actual results • Save time and cost with automated bookkeeping: • Automate the entry of bank transactions via daily bank feeds or file uploads • Automate the entry of purchase invoices by taking a picture on a smartphone
- 20. pkf-francisclark.co.uk • Protect your data: Secure hosted service provides automatic, continual backups • Share selected information anywhere, with anyone: Bookkeeper, accountant, consultant • Automate bookkeeping: Bank feeds, invoice scanning, machine learning, reminders, alert • Low cost: Service not a product • Most importantly: Work with us. Cloud Accounting (continued)
- 22. MTDfV: Sage 50
- 23. MTDfV: Sage 50
- 24. MTDfV: Sage Group VAT
- 26. pkf-francisclark.co.uk Xero Starter (RRP £10.00/m) • Limited bank rec • 5 sales & 5 purchase invoices per month Standard (RRP £22.00/m) • Full product without multicurrency & payroll Premium (RRP £27.50/m) • Multicurrency
- 27. pkf-francisclark.co.uk QuickBooks Online (QBO) Essentials (RRP £18.00/m) • 3 users • Invoicing • MTD Ready • Employee Time • Multicurrency • Payroll (+£1 per employee/month) Plus (RRP £27.00/m) • Budgets & purchase orders • Manage stock • Track costs by project, location & budget
- 28. pkf-francisclark.co.uk Sage Sage Business Cloud Accounting • Accounting Start £10.00/m • Accounting £22.00/m Sage50cloud Accounts • Essentials £20.00/m • Standard £60.00/m • Professional £125.00/m Sage Business Cloud Financials • Quotes on request
- 29. pkf-francisclark.co.uk Third-party applications • Float • Expensify • Timely • Workflowmax • Insightly
Editor's Notes
- Making Tax Digital or MTD from here on out HMRC’s ambition is to be one of the most digitally advanced tax administrations in the world That is quite some ambition when every sales invoice is Brazil is reported to the tax authorities Or in Spain when transactions are reported every 4 days together with the underlying workings So just how ambitious were HMRC with MTD…
- Read slides… Obviously we have passed 5 April 2018 So why am I telling you about the past? Because this is HMRC’s vision for MTD. This iteration of MTD even made it in to the 2017 budget But it never got Royal Ascent and was scaled back during the snap election and Brexit upheaval. But the appetite remains. So, it is entirely possible some, or all, of these proposals could be seen again in the future…
- Where are we now? Application Programming Interface Recent development: Deferral Trusts, not for profit organisations that are not set up as a company, VAT groups and divisions, certain public sector organisations, public corporations, traders based overseas, businesses that are required to make payments on account and annual accounting scheme users. What’s the issue then? Aside from our near 1,000 clients with turnover >£85,000 don’t have digital records. There are those of you here who don’t submit your returns directly via the software c.80% Why? Education / not all software can talk to HMRC. The biggest example being Sage, if you are on v24 or previous you will need to upgrade or move software to be compliant with MTD in 6 months’ time. In total, almost 4,000 of our clients, so you, are impacted by MTDfV. That is 1.1m small business if we take the UK as a whole.
- But if I were a betting man, I’d expect the original proposals to reappear in some form. HMRC are running pilots for their original vision of MTD Perhaps there will be a voluntary adoption, transitioning to compulsory legislation over time? The original proposals where to impact the smallest businesses first and largest last, The move to VAT brought larger businesses in first, Will you be the first ones in to the next stage of MTD? We honestly don’t know. But, From the meetings I attend with HMRC present, the message is always: “Use this delay to get your house in order” MTD for VAT is seen by them as just the start of wholesale change to the tax system
- That’s the background. Now over the next few slides I want to give some more detail of the upcoming MTDfV legislation.
- I won’t dwell on this too much as, without making too big a presumption, those of you here are likely to be over the VAT threshold. That is the box 6 turnover from your VAT return: includes reverse charges, but excludes exempt income. Not necessarily the turnover figure from your accounts Also, for any concurrent 12 month period Again, not just the 12 month period of your accounts Join voluntarily so the whole group is filing in the same manner? If taxable turnover drops below £83,000 (deregistration limit) the only way out of MTDfV is to deregister for VAT Exemptions: religion, insolvency or not reasonably practicable (age, disability or remoteness of location).
- Now, excuse the jargon, this is lifted directly from the legislation About you: no change About transaction: no change (less info than already store) The only real change is the connection via the API platform
- Manual Records: If a business wishes to maintain paper records they can. But, by the earlier of the submission of the VAT return, or its due date, each VAT relevant transaction must be entered in and submitted via software. Spreadsheets: The exemption for spreadsheets was aimed at complex VAT schemes requiring additional computation outside software. Not simple businesses. Even if you spreadsheet records all the required data, A spreadsheet cannot file directly to HMRC. Thus the business will need to acquire additional software or use their accountant to file the return. Software: Sage, but others too, have a lot of businesses running older versions. They will only give you MTDfV compliance if you upgrade to the latest version. This can be expensive and/or you lose functionality with other business tools. Cloud Accounting: Our recommendation, where right for the business, is a move to cloud accounting. MTDfV and cloud accounting are a real opportunity to truly digitalise the way we and clients work individually and together.
- Situations: In this instance it is acceptable to extract the information to software, perform calculations, and manually adjust the return. Margin: E.G. Partial Exemption – specifically referred to in legislation: “Calculations not required to be kept in functional compatible software” “The business can TYPE the adjusted figures in to software” “However, using a digital link reduces the chance of errors” This does mean though that the underlying transactions must still be compliant. Retail: There is no requirement to keep a digital record of each supply that makes up the daily gross takings. Flat Rate: On a flat rate scheme you can only claim VAT on capital expenses that exceed £2,000 Flat Rate: No requirement to keep the records of other expenditure digitally Limited: For consultants, etc who have no real overheads, flat rate is 16.5% of gross income. Essentially paying VAT of 19.8% to HMRC on net sales. So HMRC are not mandating your entire bookkeeping process has to be digital But two systems, one for VAT transactions, and one for non-VAT transactions, doesn’t make sense in my head.
- Two bits of small print: Large payers. There are likely to be businesses here who Are in a current financial year that will require an element of MTDfV reporting: Anyone whose year end was post 31 March 2018 (note: 30 September 2018 if you fall under the deferral) Most obvious being the default 5 April tax year end, but for larger businesses like yourselves: 30 June or 30 September A significant proportion of this years accounting records must be MTDfV compliant Which is ok if you already meet the “what” criteria But what if you are going to need to change systems mid year? My practical advice would be not to rush in to a change Business continuity is far more critical than a VAT return submission Accordingly there is a soft landing period until April 2020 for digital links Although your VAT return will still need to be submitted via an API to HMRC
- Where, well in software obviously, which can include a spreadsheet in the right circumstances. So how? That really depends on your current system.
- If you have a system that doesn’t talk to HMRC, you make adjustments to your return, or are part of VAT group, Things get more complicated. Once your VAT data is in software It must be digitally linked from source through to submitted return So what constitutes a digital link? Without manual intervention such as copy & paste or literally keying in the data Cut & Paste?! That’s the soft landing period I previous mentioned. From 1 April 2019 your VAT returns must be submitted via API But you have until 1 April 2020 to link your parts of the VAT reporting system together That is the soft landing period
- Where your software can’t link to HMRC, or you need to make adjustments You can use a piece of bridging software Download a CSV file from your ERP Either prepare the VAT return in Excel and upload to the bridging software Or, upload to the bridging software and prepare the VAT return Then use the bridging software’s API to submit to HMRC We have had a number of discussions with developers of bridging software And are now in advanced talks with one, specifically to: 1) Provide a service where we submit on your behalf, or 2) Recommend a tool enabling you to submit yourself Prices for those on the open market ranged from free to £250/m depending on the functionality that will be required: Be it the simple upload of an Excel file as illustrated, Or, full VAT software, that connects to your on premise systems pulling in the VAT relevant transactions to allow additional calculations, performing analytics and preparing journals to update the underlying data thus giving a full audit trail. As part of my role with some of the leading accountancy software developers, I had early access to the early iterations, these were purely a Macro enabled spreadsheet and prone to breaking. It’s not always best to be the early adopter. Also, it’s wise to remember, there is no such thing as a free lunch. Where does that revenue come from? What data are you sharing and to whom? What are the additional charges for extra functionality? And how reliable / futureproofed is that product? Will the Big4 build out further functionality to their clunky Excel solutions as and when MTD develops further? In the medium term a product from a known software developer is going to be a safer bet.
- As a proof of concept for a fuller Making Tax Digital…? I’m being cynical. Let’s end on a positive note, especially as I am excited about how MTD could improve the accountant and client relationship The official line from HMRC: To improve the accuracy of your VAT return. Either by us, your accountant, defining rules around the VAT treatment of items in your software And/or the easier sharing of data with the accountant for review and/or submission In time, HMRC also expect the software to guide businesses with hints and nudges HMRC do not want remote access to your accounting software (YET) My family’s business had VAT enquiry, I offered read only access to our software and they declined (due data being live) and request reports instead. But in Australia they do. Which, I’ve been told, makes the enquiry process rather painless as the ATO do all the work and raise an assessment if there are any errors. So who knows what the future holds. But I’d rather be the client advocate in any enquiry rather than being forced out of the loop. And from Government: You may have heard the news pieces around productivity and the GDP of UK businesses/employees being below our EU counterparts They believe that by reducing the admin burden on business more time can be reinvested in growth. Could a more streamlined compliance process free up your admin time to look forwards rather than backwards? Could a more connected ERP system free up the shop floor to develop more product?
- In it’s simplest form, cloud computing is storing and accessing data and programs over the Internet. Sharing of servers allows a pooling of processing power. Also means less IT infrastructure required in house, less hardware more software as a service. Access cloud anywhere via WiFi or mobile data. Cloud already used day to day by business and individuals. Research by QuickBooks showed 78% of businesses use cloud for business critical tools. Examples: Apple + iTunes. (Not business critical – but most public use of the word ‘cloud’) Google Docs, Gmail, etc. And Online Banking, to name a few.
- Adoption rate – 84% in 2015 – and generally 36% over the last 5 years. Real time information allows accountants to advise in real time HMRC inspections / banking relationships / applying for finance Accessibility – not just for the third parties as mentioned, but the ability to take your finances with you on the go Mobile Apps/Tablet Apps – the ability to be at a clients and send them an invoice straight away or record an expense by taking a photo – all comes down to time saving Powerful reporting functions within the software, or the ability to export the information allows for productive management account information Machine learning – machines make predictions against patterns of data – same supplier invoices / direct debits – machine can learn the treatment of these Integration – web based so no longer platform orientated (e.g. Windows/mac) – but integration with other applications, CRM, payroll systems, time tracking systems, google etc.
- No backing up to USB drives, CDs, 3.5 inch floppies… Your data is continually backed up for access by you from wherever you want. Price? Ranging from £20 - £30/m. And work with us. Let me show you how…
- QuickBooks: Probably the one you will have heard on the radio or seen on the TV. Worldwide market leader with 3.2m users of QuickBooks Online. A real good value for money product. Xero: Started the cloud accounting revolution about the same time the iPhone was released. Worldwide 1.1m users but a 50:50 split with QBO in UK. Like Apple, simple and intuitive, but marginally more expensive. Sage: The UK’s largest software provider. Although they entered the cloud accounting party slightly late. Sage Accounting is improving. But I’d still recommend Xero or QBO over it at the moment. Receipt Bank: Not bookkeeping software but invoice capture. Take a photo of your invoice and watch it appear in your bookkeeping software, with the details extracted. I will briefly mention FreeAgent: They have been purchased by Natwest/RBS. If you bank with them they give you the software free of charge, provided you give them access to your data. We are accredited on FreeAgent but are not currently recommending it until further clarity is given on the bank relationship.
- I imagine a number of you here use Sage If you are on Sage 50 You need to have v25 or onwards and paying for an active subscription. To file Simply tick the box to enable MTDfV submissions
- Then, as a new Gateway is used, Enter your credentials, select your period, and file.
- Sage also have an additional Group VAT return module that Applies to all it’s desktop offerings: 50 and 200 Once each company’s VAT return is prepared and reconciled Select the companies to consolidate And submit to HMRC.
- Accounting Start - £10+VATpm – simplified version easy to set up, record invoices & expenses Accounting - £22+VATpm – all the use of accounting start, plus unlimited users, invoicing & multi-currency. Platforms are all online – accessible anywhere Sage50c – essentially Sage desktop – with cloud capabilities. Essentials – 1 users, basic package for a single company. £20/m Standard – 1 user, £60/m – 2 users – up to 10 companies, MO 365 integration, stock Professional – 1 user - £125/m – up to 20 users, unlimited companies One client that was paying £165/m - £2k a year on software Sage Business Cloud Financials – complete package built on the salesforce app cloud – quotes from Sage Supposedly 124 different pricing combinations….
- Over 700 apps connect to Xero alone. 1,000+ individual apps across platforms. Lots cross over between Xero, QBO, etc. Float – cash flow forecasting – links to cloud accounting software & allows for manipulation of real time invoices so that you can see the effect of early/late payments from the system etc. Expensify – modern take on employee expenses – track mileage, photograph invoices, put together an expense claim which can be directly uploaded into software Timely – All things time related (time sheetes, diaries, staff etc) Workflowmax – (project work, construction etc – track the progress of your jobs and link to purchase ledger) Insightly – CRM for small businesses – record leads, details of your network, link this to social media accounts, links to cloud softwares