As the launch date for the first phase of Making Tax Digital (MTD) approaches we are being bombarded from all sides by information about what business owners need to do to become MTD compliant. But what does this actually mean in practical terms for our rural clients?

Who does Making Tax Digital apply to?

The first phase of the MTD programme is directed at VAT registered businesses. In the agricultural sector, where sales are predominantly zero rated for VAT purposes, most farming businesses are VAT registered whether above the £85,000 VAT registration threshold or not. This means that some farming businesses are voluntarily registered for VAT with taxable turnover below £85,000 – this first phase of MTD does not require these voluntarily VAT registered businesses to comply with MTD, and the existing HMRC portal will continue to be available for these businesses to file their VAT returns online. Voluntarily registered businesses can opt into MTD but will then stay within MTD until they notify HMRC that they wish to come out of the scheme.

What is the timeframe for Making Tax Digital?

For the next VAT return period beginning on or after 1 April 2019 all compulsorily VAT registered businesses (with a few exceptions) will need to meet the new MTD requirements.

So, for businesses filing VAT returns monthly, the April 2019 VAT return will need to be filed under MTD. For quarterly filed returns the following timeframes apply:

March cycle – June 2019 return April cycle – July 2019 return

May cycle – August 2019 return

Don’t forget that the £85,000 VAT registration threshold must be reviewed on a rolling 12 month basis.

Do I have to do it?

Under the existing VAT regulations there is an exemption for the “digitally excluded”. This covers those who do not use computers for religious reasons along with those who are unable to comply due to age, disability or location.

If you are not currently exempt from online VAT filing then it is extremely unlikely that HMRC would agree to the exemption applying under MTD.

In particular, location would cover you if you cannot obtain access to broadband because of where you are located. It would not apply to you if you have simply chosen not to sign up for broadband.

There is no specific age at which the exemption would apply; HMRC would take each case on its merits. It would probably be difficult to secure this exemption in a multi-generational farming business where, perhaps, the oldest generation has always maintained the records in a manual cashbook but there are one or more younger generations who would be capable of taking on this role using digital software. This can also provide a useful way to integrate younger generations into the administration of the business.

I currently keep my records on a spreadsheet. Can I carry on doing this?

Your existing spreadsheet on its own is not likely to enable you to comply with MTD. You will either need to start using a new spreadsheet which is Application Program Interface (API) enabled or upload information from your spreadsheet onto a piece of MTD enabled software. Either of these options would provide the link to the HMRC system that is required under MTD.

HMRC will operate a “soft landing” approach in the first year of MTD and will not enforce the requirement to have digital links between software in order to give more time for digital links to be built into existing software. But it is better to be compliant from day one.

I have never used accounting software, what should I expect and which software should I choose?

The gov.uk website publishes a list of MTD compliant software with over 200 software suppliers already compliant and a shorter list of software suppliers with products still under development. This list includes dedicated farming software as well as generic business accounting software.

Your accountant should be able to help you to make the right choice for your business and personal circumstances.

What do I need to do now? 

HMRC have produced a useful YouTube video “How to sign up for Making Tax Digital”, view it here.

Otherwise, as always, we are happy to help if you have any queries.

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