2019 saw a huge number of UK organizations register for HMRC’s “Making Tax Digital” change that was authoritatively executed in April a year ago. In any case, that was the simple part. VAT Managers need to buckle their shoes as it will be a rough 2020. Phase 2 is on its way.
When Phase 2 of Making Tax Digital will be rolled out in April of 2020, more than one million organizations of all sizes will be influenced by the central points that were not predominant in stage 1. As a correlation, consider Phase 1 as the practice session of digital tax and Phase 2 as the match with all the technique and line changes and strain to go with it too.
What was Phase 1 of Making Tax Digital?
Phase 1 furnished organizations with what HMRC called a ‘soft landing’ into MTD and the acceptance across UK-enrolled organizations was formally portrayed as “adequate”, however, is that adequate? It didn’t make the mark as expected and by July 2019, just 10% of UK organizations had endorsed. Besides, it was anything but difficult to discover modest and energetic “bridging” software to manage MTD’s phase 1, however, phase 2 will call for a strong technology solution to safeguard your business and keep it 100% compliant and avoid any kind of penalties.
What is Phase 2 of Making Tax Digital (MTD)?
Phase 2 of MTD will be impacting more than a million businesses in the UK. There are challenges that all will have to gear up for.
Challenging Factors of Phase 2
- Strict rules will be implemented around the digital connections and the way companies must upload their VAT returns
- Pretty basic accounting software tools will not have features needed to offer a way to file your financial records.
- Fines for non-compliance will be put in place.
What needs to be done in order to file an MTD-compliant return in 2020?
The basic requirement is for companies to retain appropriate Digital Records. VAT registered businesses must hold the following on record digitally and should be prepared to submit it electronically while also confirming they have digital links to the data they have submitted. This means they will no longer accept any data that is simply copied and pasted or the upload of spreadsheets. The following is compulsory:
- Permanent information (i.e. business name, business address, VAT registration number, details of any VAT accounting scheme used, etc);
- VAT account (very similar to existing requirements); and
- Transaction data.
Important requirements for transactional records of sales and purchase both
- It is important to record the time and value of supply of each sale for both sales and purchases. You must also record the rate of VAT charged; and
- For every purchase, you must record the overall amount of input tax for which credit is acceptable.
- The crucial thing to keep a note of is that this information is needed for each supply, and not each invoice. What this means is that you will no longer be able to simply record invoice totals when there is more than one supply on an invoice.
Ready to adopt a VAT Management software for MTD Phase 2?
Does this mean saying good-bye to Excel? That’s what it looks like. During the Phase 1 multiple applications linked Excel and digital accounting software hoping that HMRC will continue to consider the uploaded Excel sheets as “digital records”. However, Phase 2 will require the digital links among permanent data and only robust, certified applications can offer this.
While most big enterprises have already accepted the end-to-end VAT management software, 2020 is going to see thousands of small companies in the search for low-cost software solutions to help them comply with MTD. Small companies that currently operate their expense management and taxes on Excel or use non-certified software apps, will need to attempt into modifying their strategy and investment decisions into better technology in order to handle MTD. You will find a set advantage to all this, such as digital automation, saving time and money, avoiding human mistakes and VAT fraud, but that will come at a cost for many small companies.
Who will be penalized?
While in Phase 1, only businesses with a revenue threshold higher than £85,000 required for compliance with MTD. Phase 2 will be presenting MTD to all businesses along with the action penalties for those companies that do not comply. There’s much at stake.
Choose the Right Partner
There is absolutely no need for you to go on this journey all alone, R7VAT has an HMRC approved solution that is capable enough of taking care of all your VAT needs for phase 1 & 2. We have ensured to follow all the guidelines laid by HMRC and ensure to keep our clients MTD compliant in 2020 with the new norms. To have a free demo of R7VAT write to us at email@example.com or call us at +44-20-8099-1653