With the April 2020 phase of MTD introduction likely to cause a number of problems, is your business prepared for three major changes that are likely to affect your business along with over one million VAT registered businesses in 2020?
Well done if you are one of the many businesses that have already filed on the new HMRC MTD platform after its introduction last April, that was the simplest part of the process! Now here is the tricky part with the ‘soft-landing’ ending in April of this year, your business needs to get ready for the three major changes around: digital bookkeeping, digital journey as well as the financial penalties for non-compliance. As mentioned above, the April 2020 phase will cause the biggest problems for businesses, however this is not the case for any businesses which were deferred on the first wave of MTD until 1 October 2019 as they will also be deferred on the 2020 changes until 31st October 2020.
So, how are the three major MTD changes going to impact on your business along with over one million VAT registered businesses in April?
Small businesses will need to invest in digital recordkeeping
One of the most significant changes to come into practice in April will impact on those small businesses that store their records in summary Excel or on paper-based systems. The new rule coming into force will require these small businesses to ensure that they digitalise the recording of supplies received and made which also includes time of supply, value and VAT rates. Furthermore, this also applies to sales including all purchases, stocks and fixed asset transactions. For those small businesses in this position, they will need to purchase some form of accounting system such as Dynamics GP or Dynamics 365 Business Central for the first time which should be MTD compliant for filing or easily integrable with MTD bridging software.
Medium and large businesses to fall short in digital journey
The second of these changes to come into practice in April will have the greatest impact on medium to large businesses. As of April 2020, the transferring of data between different compatible software (invoice and accounting systems) will need to be completed using digital links. Therefore, this will mean an end to manual inputting in spreadsheets which covers the following elements: manipulation, consolidation and error corrections. In addition to this, you will no longer be able to use the ‘cut and paste’ concession allowed for the soft-landing.
The only exception to this rule is if a business can guarantee a seamless digital journey from their accounting systems to the bridging software then onto HMRC, they can continue using this journey.
This change will be particularly painful for businesses that have several accounting systems or group accounts. In these cases, they usually go down the route of manually consolidating all the numbers for the return in a spreadsheet. In order to resolve this, they will need to find a way via major investment or very complex Excel macros to bring all this information together without any manual alterations.
Financial penalties for non-compliance come into play
To put pressure on businesses to comply with MTD, the suspension of penalties on late MTD filings will be brought to an end. These are on a cumulative basis, based on the number of offences in the past 12 months. This can reach 15% of the VAT due in addition to fines of up to 100% of undeclared VAT due to financial irregularities or deliberate inaccuracies.
If you are looking to get up and running with a new accounting system such as Dynamics GP or Dynamics 365 Business Central or looking to ensure that your existing accounting software is compliant with the MTD changes above then please get in touch with our team of experts today to discuss your requirements.
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