Contractors’ Questions: Does the start of Making Tax Digital apply to me?
Contractor’s Question: I’ve not heard much from my accountant about Making Tax Digital and still can’t decide if it affects me and my company – which has turnover below the VAT threshold. I did read last week’s MTD article for contractors but am still not 100% clear on what, if anything, I should be doing now that the government says MTD has become law.
Expert’s Answer: You mention that you have an accountant. Well, ideally, your accountant would have advised you of your MTD obligations by now, and whether you need to complete the registration process.
The current guidelines from HMRC suggest that if a contractor pays VAT by Direct Debit, the contractor should wait at least one week after the payment of their last VAT return under the ‘old’ regime before registering for the new system. And the contractor should wait (before registering) a minimum of two weeks in advance of their 1st submission under MTD is due.
If you are affected by the April 1st 2019 commencement date (which it does not sound like you are), businesses will need to submit digitally at the time of their first VAT return which, for the bulk of businesses which file VAT quarterly, will not be until August at the earliest. HMRC guidance also says you should wait at least 72 hours after registration before you – or your accountant – authorises your MTD-enabled software.
To expense the cost of such software -- a query we're being asked quite a bit -- businesses should record how much it sets them back in exactly the same way as they would the cost of conventional bookkeeping software. Also, if you are using an up-to-date book-keeping software, then it is likely that the software will already be 'MTD-compatible' and, therefore, it should not increase your subscription fees.
Crucially for you however, if you are a limited company with turnover below £85,000 (the VAT registration threshold), then currently you do not need to register for MTD for VAT. This means you can simply continue to file your VAT using the current HMRC Gateway. Be aware though -- you can voluntarily register for MTD for VAT if you wish (it was only this aspect of the system that came into effect on April 1st). But for now, as long as your company turnover remains below the £85,000 VAT registration threshold, there is no requirement for you to have a digital account, and you can continue under the ‘old’ system as usual for your VAT obligations. And it won’t affect you as you're already up and running, but it should be pointed out that from April 2020, any new business that registers for VAT – which can also be registered for voluntarily -- will fall within the MTD for VAT regime.
The expert was Mike Parkes, technical director of tax return software firm GoSimple Tax.