Get your practice MTD ready in 4 simple steps
Making Tax Digital (MTD) promises to deliver the biggest change to the accounting industry since RTI was introduced in 2013. With the passing of the latest budget, it is now certain that MTD for VAT will be mandated at the beginning of April 2019.
What is MTD?
Making Tax Digital, is a HMRC initiative designed to digitise and improve the UK tax system.
Why is it happening?
The Exchequer loses £9bn to avoidable mistakes every year. The improved accuracy of digital records will reduce the amount of money lost to these mistakes.
Who will it affect?
All VAT registered businesses with a turnover above the £85, 000 VAT threshold.
When is it happening?
MTD for VAT will be mandated 1 April 2019.
Other taxes such as income tax and corporation tax will not be mandated before 2020.
To ensure your practice is ready for the digital switch, we have created this four-step plan to get everything in place:
- Educate your team
If you will be informing clients of the new regulations, it is imperative that your team is educated. For a complete look at the new regulations, visit HMRC’s MTD page. We have compiled a few key points to get you started:
- 1 April 2019, all VAT registered businesses with a turnover at or above the £85,000 VAT threshold, must store business VAT records digitally and send VAT returns directly to HMRC via MTD-compatible software.
- If a business’ taxable turnover falls below the threshold after previously exceeding it, they must still adhere to the rules unless the business de-registers from VAT or meets some exceptional criteria.
- Once a business has started using MTD for VAT returns, it will no longer be able to file returns via the HMRC online portal.
- The deadlines for making payments and sending VAT returns won’t change.
- 1 April 2019: the software used to prepare a VAT return must be MTD-compatible.
- April 2020: all software used by a business for VAT must share the data digitally.
- It is the information stored in the digital records that will generate the MTD VAT return; this will produce the information required to fill in the nine boxed of the VAT return.
- Business whose taxable turnover has never exceeded the £85, 000 threshold, are exempt from the MTD changes.
- Plan the switch
After educating your practice, it’s time to start planning the implementation of MTD. It is necessary to take some time to plan an operation of this size, it will increase the efficiency of the operation while minimizing the chance of mistakes. With less than five months left, you will need to be assertive with those that are still to change.
- Take the total client base
- Organise all clients according to their year-ends. Soonest year-ends, go first.
- Prioritise those at the top of the list
- Check: is the client VAT registered?
- Check: when are they due to file VAT return?
- Check: which software do they currently use?
- Pass this information onto the account manager
Divide the total number of clients that are yet to switch and divide them by 4. This will give you the number of clients you need to get MTD-compliant each month. This will produce a rough figure and how viable it is for your practice will depend on the year-end dates of your customers.
- Communicate with your clients
Now that your practice is educated and has a plan, it is time to contact your clients. It is important to communicate the legal necessity of being MTD-compliant while portraying the benefits the new software will bring.
There are three key benefits:
- Efficiency - greater automation saves time
- Accuracy - fewer opportunities for errors, miscalculations and fraud
- Easier - filing tax returns will be so much simpler
It will be up to your team to keep to the plan but to communicate you must go through the following stages:
Put the message out there, in whatever way works for your practice. Do you have a good social media presence? Do your emails get a good response rate?
Circulate some informative content using the key dates and info from this post, encourage your clients to contact your firm and start the process.
Release a second round of information, this time with a bit more urgency. Represent the legal requirement of becoming MTD ready. The prospect of fines always seems to be a great motivator for clients!
In the second release from your practice, firmly encourage your clients to contact you and alert them to the shortage of time.
After contacting clients twice, it is time to turn up the heat. Starting with those whose year-ends come soon, contact the clients personally. A quick call from your account manager should be enough to alert them to the necessity of changing.
- Client Training
When it comes to implementing the new MTD-compatible software, you need to train your clients to use it.
For first time users of cloud software – alert them to the benefits it will bring. They may have forgotten what you discussed in your previous contact.
While digital records will benefit everyone in the long-term, it is important that nobody gets left behind when making the switch.
Inform your clients which of their responsibilities will be changing. It could be that, they will be submitting expenses receipts via the bookkeeping app instead of storing them in a shoebox until the year-end.
You may have to update your client about their Business Tax Account (BTA). The MTD changes may require your clients to update some information in their BTA regardless of having an agent work on their behalf.