Many farmers and rural businesses are not prepared for forthcoming changes to VAT returns, and should act now to avoid financial penalties, according to accountant Old Mill.
The firm has held a series of Making Tax Digital clinics across the South West in recent months, attracting nearly 150 attendees – but the real issue is with people who are still unaware of the changes.
“A recent survey by the Chartered Institute of Taxation (CIOT) revealed that only 12% of people submit their returns via software, as required for Making Tax Digital (MTD),” explains Janet Woodford, rural senior manager at Old Mill. “Although 99% of people submit their VAT return online, a lot need to make big changes to their record keeping and software.”
So what changes are in the pipeline? According to Mrs Woodford, taxpayers will have to keep records of all of their sales and purchases in a digital format, in MTD-compliant software, and submit returns through that software from 1 April 2019. For farmers, this means keeping the name, date and tax rate of all purchases and sales – from feed and fertiliser to livestock and milk – in one software package.
“Currently, farmers tend to have one bit of software do to their invoicing, a spreadsheet for their accounts, and a paper file for their receipts,” says Mrs Woodford. “Bringing all of that into a digital format will involve quite a change of approach – but if they don’t do it they won’t be able to submit their VAT return, incurring penalties from HMRC and meaning they won’t be able to claim their VAT refund.
Although accounting software like Xero, Quickbooks, Sage and Farmplan all comply with MTD, it has to be the latest version – so many people will have to upgrade their software, warns Mrs Woodford.
And it may take time to get used to keeping all of their records online. “As the information is submitted directly from the software it’s vital that all your data is accurate, so it’s worthwhile using the software now to get used to it.”
Taxpayers won’t have to keep their records updated daily – they can upload it all in one go before submitting their VAT return. But with Making Tax Digital likely to be rolled out to self-assessment tax returns soon, alongside the move to Real Time Information, it’s worth getting ahead of the game, she adds.
“There are benefits to having all of your information in one place – you can get an up-to-date snapshot of how the business is performing, and have all of the information to hand should your bank manager or accountant require it. It will also speed up the VAT and tax return process and enable you to be more proactive with your financial management.”
Clients who have attended the MTD clinics and software training sessions have found it easier than expected to become compliant, explains Mrs Woodford. “However, this is a new way of working and it’s vital to be accurate, so start now so you have a trial period to iron out any issues before the deadline arrives.”