Putting Making Tax Digital for VAT into Practice

Although there has been much discussion over whether the start of Making Tax Digital for VAT will be delayed, there’s no sign of the initiative slowing down.

This means the vast majority of VAT-registered businesses will have to comply with Making Tax Digital for VAT in respect of VAT periods beginning on or after 1 April 2019, although certain entities, such as unincorporated not-for-profit organisations and businesses with complex VAT requirements, will not be mandated to comply with Making Tax Digital for VAT until 1 October 2019.

As a result, accounting practices only have a few months to get their clients ready for the changes to VAT return filing that Making Tax Digital will bring.

Below we outline how Taxfiler has put solutions in place to help your practice prepare for this new digital regime.

If Your Clients Meet the Making Tax Digital for VAT Criteria

Businesses that are VAT-registered with taxable turnover above the VAT registration threshold (currently £85,000) will be required to comply with Making Tax Digital for VAT.

In short, this means that affected businesses will have to store digital VAT records and file digital VAT returns to HMRC using software that is compatible with the Making Tax Digital platform.

For accounting firms with clients that fall within the remit of Making Tax Digital for VAT, Taxfiler will provide links to third-party bookkeeping solutions so that you are able to file your clients’ VAT returns digitally to HMRC.

The third-party providers that Taxfiler will link to include popular providers such as:

  • FreeAgent;
  • KashFlow;
  • Quickbooks (Intuit);
  • Sage; and
  • Xero

All of the above providers have been recognised by HMRC as being compatible with Making Tax Digital for VAT and offer integrated filing solutions that should ensure ease of filing under the new regime.

If Your Clients Are Below the Making Tax Digital for VAT Threshold

Not all businesses will be required to comply with Making Tax Digital for VAT. Specifically, businesses that are VAT registered but have taxable turnover below the VAT registration threshold can continue to file their VAT returns online as normal, although these businesses are able to opt to join the Making Tax Digital for VAT regime if they wish.

As not all businesses will be affected by Making Tax Digital for VAT, there will be a mismatch between clients in accounting firms, as some clients will be required to comply with Making Tax Digital for VAT while others won’t.

Firms will therefore have to decide how best to file their clients’ VAT returns, taking into account the different filing requirements that their clients may be subject to. Generally, firms could choose to approach this mismatch in one of two ways.

Firstly, accounting practices could choose to adopt a piecemeal approach when it comes to filing. This would involve filing VAT returns for clients outside the scope of Making Tax Digital for VAT in the same way as they have previously done, while filing VAT returns for those clients within Making Tax Digital for VAT using Taxfiler’s links to compatible software, as outlined above.

However, if firms would like a solution that enables them to file all their clients’ VAT returns from one location, regardless of whether that client is within the Making Tax Digital for VAT regime, then Taxfiler has another answer.

Specifically, Taxfiler will be providing a bridging solution to VT Software, a bookkeeping software provider that enables VAT return data to be exported to bridging software so that it can be filed with HMRC. This means that all clients’ VAT returns can be filed from the same place, taking the stress out of filing different VAT returns on different platforms.

Getting Your Clients Ready for Making Tax Digital

As Making Tax Digital for VAT represents one of the biggest shifts in VAT reporting in recent years, the earlier your practice can be prepared the better.

The first step is to take time to review your existing client list and identify which clients will come under the scope of Making Tax Digital for VAT, as this will help your firm communicate with those clients about the upcoming changes to their VAT filing and record keeping requirements.

What’s more, it will also enable your practice to understand how many clients will have to comply with Making Tax Digital for VAT, and how many clients will not have to transition to the new regime. This will then give you the opportunity to decide which VAT return filing solution offered by Taxfiler is right for your practice.

If you need any further information about your clients’ VAT filing options under Making Tax Digital for VAT, don’t hesitate to speak to a member of the Taxfiler team for advice.

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