Scott Craig: Preparing for Making Tax Digital in three easy steps

Scottish business advisors Scott-Moncrieff outline how the construction industry can ensure it is prepared for the upcoming Making Tax Digital deadline.

Scott Craig

I don’t want to panic you, but HMRC’s Making Tax Digital (MTD) deadline comes into effect on Monday (1st April). What this means is that all VAT registered businesses will need to submit their VAT returns to HMRC using compatible software.

Latest estimates suggest that only 70,000 companies are prepared for the deadline; meaning that more than one million businesses still need to sign up to the initiative.

There is no denying that MTD has faced fierce criticism with many organisations and trade bodies stressing to HMRC the lack of readiness across the board. Indeed, from our own research, almost a fifth (19%) of small businesses told us that they were deeply concerned about the deadline and 17% wanted to see the activity scrapped altogether.

But with no delay given by HMRC, it’s vital that organisations – including those in the construction sector – ensure that they are ready to follow the initiative from their next VAT return date post-1st April. While the penalties have not been made explicit, HMRC is likely to fine companies who do not comply with the directive. Fortunately, there are some simple steps to follow and avoid such fines.

Review your current processes

HMRC has said that businesses should see MTD as an opportunity to make tax administration more effective, efficient and simple. As a result, it shouldn’t be a red tape obligation, but a chance to transform the accounting function and make it fit for the future.

Indeed, it provides a good opportunity to review processes in relation to VAT, across tax returns generally and how you are filing returns – be it manually or digitally.

If you are still filing hard copies, it’s time to confirm what software solutions will suit you best to comply with MTD (more on that later).

For any company already using MTD compliant software, it is still worth reviewing processes; specifically, how income and expenditure transactions are recorded, to confirm that they are in line with MTD regulations and HMRCs expectations.

Look to the cloud to go digital

In recent years, there has been a surge in the amount of cloud-based accounting software available on the market. It is estimated that there are more than 220 software products for businesses to choose from to digitise accounting functions – each offering a range of prices (including free solutions) and varying levels of functionality.

Some providers, such as Xero, have been working with HMRC to ensure their solutions will be MTD compatible, making it simple for users to transition to the new reporting system. Moving your records to a compatible system could minimise the chances of your business being subject to penalties and fines for late payment due to non-compliance.

Don’t get left behind

It’s vital that you ensure that you have signed up to the programme with HMRC. While the initiative begins on 1st April, your company won’t be liable to comply with MTD until your first VAT return is due.

However, registering with HMRC for VAT doesn’t happen in real time. For businesses that pay VAT by direct debit, this will need to be done at least seven working days before sending your first VAT return and at least five days after sending the last VAT return under the old system. 

As guidance, your first MTD VAT return will be due within one month and 7 days of the end of your first VAT period which starts after 1st April 2019. If your business submits monthly returns, that will be the VAT period ending 30th April 2019. However, for those business that submit quarterly VAT returns that will be the period ending 30th June 2019, 31st July 2019 or 31st August 2019.

Entering the new working week with a clear understanding of the steps your business needs to take to be MTD compliant will ensure you will avoid any repercussions that HMRC that might impose. Better to be safe than sorry.

  • Scott Craig is a partner at Scott-Moncrieff

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