The UK’s HMRC has announced that the 1 April 2020 second phase of Making Tax Digital for VAT has been postponed by one year until 1 April 2021. Businesses now have until their first VAT return period starting on or after 1 April 2021 to put digital links in place.
The introduction of MTD (Making Tax Digital) in 2019 sent ripples of panic throughout the business community.
What would this mean for submitting your tax? How would it affect your Sage system set up?
Broadly speaking, we found that most businesses have handled the change without much difficulty. If you are using an up to date ERP solution, like Sage X3, then the new functionality that is MTD compliant will be built in. If not, then there is an array of third-party solutions on offer that are able to “plug the gap” and make your tax digital.
There were various caveats to the 2019 legislation that were relevant for many companies using Sage X3; for example, those based in multiple countries or those with complex processes would have a longer transition period. The government announced in March 2019 that the focus will be on supporting businesses to transition and will therefore not be mandating MTD for any new taxes or businesses in 2020.
More recently the government has announced that due to the transition period of Brexit the introduction of Making Tax Digital for Corporation Tax will be delayed until at least 2021 to allow for Brexit delivery.
The main purpose of MTD is to simplify how the British government processes tax so if you are already using a digital system to manage your accounts, which most users of Sage X3 will be doing, then it will be fairly simple to prepare for the changes to the legislation.
What Can You do Now to Prepare Your Sage X3 Solution?
If you are using an older version of Sage X3 then the best course of action is to speak with your Account Manager about patching to a suitable level or upgrading if required. Not only will this then equip you with the functionality to be MTD compliant but your business will also gain all the modern technological enhancements from the latest version of Sage X3, such as improved data insight and more user-friendly user interface.
The key digital records that HMRC needs from you include:
- Business name and contact details
- VAT number and details of any schemes used
- VAT on supplies made and received
- Adjustments to returns
- Time of supply (tax point)
- Rate of VAT charged on supplies made
- Reverse charge transactions (if your software doesn't record them, you need to record them twice as a supply made and a supply received)
- Daily gross takings (DGT) if you use a retail scheme
- Purchases of assets you can reclaim tax on if you use the Flat Rate Scheme
- Value of sales made and total output tax on Gold Accounting Scheme purchases (if applicable)
- Documents covering multiple supplies made or received on behalf of your business (by volunteers, third party businesses or employees)
If you are keeping this information in various disparate solutions, or separate spreadsheets, then it is worth considering the benefits of updating your software to one solution that can manage this entire volume of data. This not only helps with being MTD compliant but will provide you with a much clearer view of your organisations performance and minimise duplications of workloads.
Ultimately, as a result of the MTD legislation you will need to translate your spreadsheets into compatible software in order to be MTD compliant. There is a multitude of third-party solutions available which HMRC calls 'bridging software', which convert your records to the right format before you submit. Your digital records don't all have to be in one place, but HMRC requires data to flow and be exchanged digitally between applications by 31 March 2020. In cases where the customer cannot upgrade, or complete the VAT process within X3, Mysoft have worked with VitalTax who can provide “bridging” solutions for companies using Sage X3 and other financial solutions in order to become MTD compliant.
There is limited and conflicting information available on when Making Tax Digital will come into play for Corporation Tax. HMRC are measuring the success of the VAT rollout first before making any further decisions. It is believed that the earliest possible that this would be introduced would be at a point during 2021.
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