Are You Prepared to Go Fully VAT Digital?

 As a small business owner, you will know that all Vat Returns have been digital, i.e. online, for some time. But you may not realise that HMRC's plans do not stop there. In under a year, you will have a very different set of requirements to fulfil.

Phase One of the new Make Tax Digital process comes in as early as April 2019. So start planning in this tax year, for the changes to come in the next.

Making Tax Digital - the implications

The authorities now intend to more or less make it mandatory for you to buy or lease what they describe as functional compatible software, such as Clearbooks, to make all your entries real-time. (Note to Mac users: check that your chosen solution will work in the UK).

This may mean an end to leafing through paper records every quarter or year, but it does mean that you (or whoever does your accounting) will have to keep on top of, and record, all forms of expenses as they happen, as well of course as your invoicing.

It is said (following representations from small business groups) that spreadsheets can still be used if you link them electronically to HMRC, but this is intended as a temporary measure and it could be problematic in practice.

VAT goes first

The initial phase of what is intended to be a complete business tax changeover by 2021 is that VAT records will be made digitally, continuously reportable from April 2019.

The VAT Returns currently only list total sales and purchases. After April 2019 you must digitally record every single item, showing the VAT element - e.g. zero-rate, standard-rate. All the adjustments you may make - reverse charges on imports, car leases, subsistence, entertainment etc. also need to be shown.

There are potential upsides and downsides:

Advantages:

Less physical paperwork and collation/conversion of spreadsheet information

Avoidance of VAT recording errors and potential fines

Disadvantages:

Extra expense of cloud accounting software (for current non-users)

Continuous recording replaces quarterly or annual work

Likely extra hours charged by your accountant on conversion and to ensure compliance