At the start of the new financial year in April, the next phase of one of the biggest seismic shifts in UK accountancy in several decades is set to come into effect as Making Tax Digital for Value Added Tax comes into effect, with major ramifications for accountancy recruitment and the profession in general.
The Making Tax Digital initiative, initially launched in 2017 as a holistic transformation of the tax system and an end to the tax return, is set to be in effect for all VAT-registered businesses, regardless of how much money they turn over.
It is a wholesale digitalisation of the tax system and a fundamental change in how taxes are calculated and submitted, with summaries being provided every three months rather than a single tax return being submitted at the end of the year.
It is a substantial change, five years in the making, and here are some of the biggest reasons why MTD is so transformative.
No More Yearly Returns
The first, most prominent, and most major change for many businesses is the move to a far more regular regime of sending income and expenditure summaries, with summaries expected at least every three months.
The reason for this change is to ensure a more accurate evaluation of how much tax an individual needs to pay, and an end to the crunch period seen in the build-up to the 31st January where companies who file their taxes late work quickly to get them done before the deadline.
That being said, there are yearly statements that need to be submitted, both an end-of-period statement for each business income source, and a final declaration, which includes their entire income, any relevant additional information and works in a similar way to the crystallisation process currently used.
Separate Statements For Separate Income Types
One of the more confusing aspects for some small businesses, particularly those that also had a property interest is that filing a self-assessment was a relatively cumbersome process.
With MTD, one of the advantages is that people can simply submit any relevant end of period statements for their sources of income, such as self-employment, property rent and investments.
A Switch To Approved Software
The key change for MTD is a move away from paper records or spreadsheets towards fully MTD-compatible accounting software which allows them to securely keep digital records.
Whilst switching to a full accounting package is recommended and most accountants will be using such a package, some alternatives allow for a more gradual transition of records.
One of these is the use of bridging software, which links the data stored in spreadsheets to HMRC’s portal and allows for compliant VAT returns to be submitted.
This is not entirely recommended, however, as digital record keeping and maintaining digital links between sets of data will not be achieved by bridging software alone, and in some cases, an accountant may need to set up further calculations to readjust the date to fit the format required by the software package.