What’s it all about?
If you’re fond of listening to the radio, the chances are that you’ve heard the government’s catchy advertisement for ‘Making Tax Digital’ (MTD).
It’s the latest initiative from Her Majesty’s Revenue and Customs (HMRC) to simplify the tax system.
In a nutshell, we’re eventually going to have to submit all tax returns via a digital account.
As a first step, every Value Added Tax (VAT) registered business will have to keep digital records and submit VAT returns using compatible software. (If you have an annual turnover exceeding £85,000, you must be registered for VAT, although you can voluntarily register for VAT if you have a turnover under this sum).
As the advert says, millions already do their banking, bill paying and much more online, so going digital with your business records is the next step.
And it’s all starting very soon – from April 1, 2019.
So now is the time to make sure your business is ready for this major change.
What do I need to do?
- Establish if you are eligible
Firstly, you need to establish whether your annual turnover exceeds £85,000 and, if so, ensure you are registered for VAT.
In the travel industry, this is not always straightforward.
For those companies reporting under the Tour Operators’ Margin Scheme (TOMS), the turnover is the gross margin, which is the difference between the amount you receive from your customer (including any amounts paid on behalf of your customer by third parties) and the amount you pay your suppliers.
This margin includes both EU standard rated turnover and non-EU zero rated turnover.
- Work out your date for complying
Assuming you are eligible and registered for VAT, you’ll need to work out your ‘staging date’, which is the date from which you need to comply.
So, if you are a standard VAT-registered business or organisation (including sole traders, partnerships, limited companies, non-UK businesses registered for UK VAT, trusts and charities), your staging date is April 1, 2019 and you need to comply with MTD for every return after that date.
If, for example, your VAT quarter runs from February 1, 2019 – April 30, 2019, the first return that will need to comply is the quarter from May 1, 2019 – July 31, 2019.
If you are part of a more complex VAT structure, such as a VAT group, your staging date is October 1, 2019 and you need to comply with MTD for every return after that date.
In this case if, for example, your VAT quarter runs from July 1, 2019 – October 31, 2019, the first return that you need to comply is the quarter from November 1, 2019 – January 31, 2010.
- Make preparations
Once you’ve calculated the date you need to comply, you’ll have to make sure you’re equipped to do just that.
This means checking whether you are using MTD approved software with the correct Application Programming Interface (API) to prepare, compile, reconcile and submit to HMRC.
A list of approved software solutions can be found on this link:
If you are using an approved solution, you’re almost there. All you then need to do is convert your VAT Government Gateway Account, where you currently submit your VAT return, into a digital tax account.
Enclosed is a document that shows you exactly how to do this.
But what if you are unsure if your software is compatible?
Then check with your provider because, for example, not all Sage Line 50 software is compatible with the new MTD set up.
The ‘linked spreadsheet’ option
Many businesses in the travel industry are in an unusual position because they do not just submit directly via a software solution such as Xero or Sage Line 50C.
Their returns are compiled from a number of data sources and once the return is finalised, the information is manually entered into the HMRC’s Government Gateway solution.
For these businesses, complying with MTD is not straightforward.
So, after much discussion with the accounting industry, the government has said that travel companies can use bridging software, linking spreadsheets to a digital tax account, as part of their submissions.
The new bridging software solution has proved popular and most of the major accounting software providers are offering this ‘linked spreadsheet’ option.
It may also be a good option for businesses reporting under TOMS, as many have found that the new software solutions struggle to adjust between their TOMS estimates and the final balance.
The next staging date is likely to be April 2020, when Income Tax and Corporation Tax Submissions will be made via a digital tax account. HMRC have still yet to confirm if there will be criteria as to how businesses will be staged and we will bring you up-to-date information as soon as we receive it.
White Hart Associates are specialist accountants for the travel industry. Visit www.whitehartassociates.com or contact 0208 878 8383 for more information.