A NEW system that will digitally handle VAT returns will be put into place from April 2019, and farmers and rural businesses are being urged to embrace it, before it is too late. 

Making Tax Digital is a mandatory piece of government legislation, and it will take affect from April next year, and business advisory senior manager for Johnston Carmichael, Karen Wilson, is urging farmers to look at how they can implement it into their business.

“It’s a huge undertaking, and there are a lot of farm businesses that still keep manual records, so it will take a lot of work,” she explained, “but it will be worth it”.

The new system will see all VAT returns being lodged through a new digital platform for businesses with an annual taxable turnover of more than £85,000, and HMRC hopes that it will help reduce the amount of avoidable errors made when submitting tax returns.

“HMRC believes that £4 billion is lost per year on simple VAT mistakes, so this has been introduced to try and reduce this,” explained Karen.

Although it may seem daunting for people who are not totally up to speed with the digital age, there are options, and these include either employing a bookkeeper, or implementing your own system and being trained by your accountant or the software provider.

At present, the system has been introduced specifically for VAT returns, but it may eventually be rolled out for other taxes.

The legislation is mandatory, however, there are some exceptions, and those are:

- If your business is entirely run by members of a religious society, whose beliefs are incompatible with the requirements of the legislation

- Remoteness of location

- Age or disability

- If it is not reasonably practical to change to the system

But, Karen added: “there are no excuses if there are other members in the business who would be in a position to learn how to operate the new system.”

All businesses with a taxable turnover of £85,000 or more per year will have to comply, unless the income is exempt from, or outside of, the scope of VAT, for example, Basic Payment Scheme funds will not be taken into account, as it is not considered taxable income for VAT reporting purposes.

“Crop and livestock income, however, is zero rated, and therefore it will be included in the £85,000 threshold,” explained Karen.

Discussing the introduction of the scheme, and the amount of alteration it will require, Karen continued: “It is a big change for everyone involved.

“The software that people use will have to be compatible with the Making Tax Digital platform, but luckily most bookkeeping providers are already compatible, or are working towards being compatible.

“An example of knowing whether or not your software is compatible is that you would need to have Sage, version 24, in order to crossover to the Making Tax Digital platform, while most cloud-based systems, such as Xero and Quickbooks, will be compatible.   

“Farmplan is also a compatible software.”

Regardless of whether you already submit your VAT return online or not, the online portal will close to businesses with a taxable turnover of £85,000 and above for VAT return periods commencing on or after April 1, 2019, and those businesses will instead have to submit figures directly through their accounting system or from a bridging software solution.  

This bridging solution will be required to submit online if you want to continue using software such as Microsoft Excel.

So what is the biggest concern for accountants, like Karen?

“At Johnston Carmichael we have clients who work with manual records, and that’s going to make the changeover a bit more challenging than those who already use digital software, but it is manageable.

“My advice for farmers in that position would be to employ a bookkeeper who is trained in using the Making Tax Digital system, or speak to your accountant, and find out if they can provide a service to train you in the system, or ask someone within the family or business who may be capable of learning the software to take it onboard,” she said.

Cloud software is something that Karen would recommend to everybody, and she understands that whilst each person and business has a preference, embracing cloud software will be beneficial.

An area to be aware of, Karen explained, is that just because you submit your VAT return through the online portal already, that does not mean you are equipped for Making Tax Digital, “so speak to your accountant to find out whether you are already equipped for it or not”, she explained.

Introducing Making Tax Digital may be a big undertaking, but it does come with some benefits. 

These benefits include having access to your real-time financial information anytime and anywhere as it is all stored on the cloud, which means you and your advisers can log in to review the data and in the long run the automation will save time normally spent inputting data manually by reducing time and human error.  

Generally, the software packages are available as a monthly subscription with no installation or significant upfront costs required. 

The monthly subscription fee usually allows you to benefit from automatic updates and software support, which can be a costly element of desktop accounting packages.

For businesses which are registered for VAT but have a taxable turnover of less than £85,000 each year, there is currently no requirement to keep digital records at the moment, but this may change from April 2020, and Karen feels it may be worth considering now, rather than later.

“I think we can all be guilty of putting something off when there is no firm obligation in place for it to happen at the time, but I think it is a good opportunity for all businesses to embrace Making Tax Digital now, so that when it is implemented for everyone, there is no pressure to get it done at the very last minute.

“It’s definitely worth thinking about doing as soon as possible. 

“Iwould advise that you speak to your accountant, and explore the options available to you,” she explained.

- To find out more about Making Tax Digital, visit: johnstoncarmichael.com/our-services/private-client-tax/making-tax-digital

- For current governmental advice, visit: www.gov.uk/government/publications/making-tax-digital/overview-of-making-tax-digital