Making Tax Digital

Her Majesty’s Revenue and Customs (HMRC) intend to make the UK one of the most digitally advanced tax administrations in the world through Making Tax Digital (MTD).  The benefit of this could be to make the collection of taxes more efficient, as well as to reduce the scope for basic errors.  Whilst ultimately income tax will also be going digital in due course, the first step in the journey will see VAT registered businesses with a taxable turnover above £85,000 required to submit their VAT returns to a new digital system from 1^st April 2019. This threshold may not affect many crofters and smallholders, however, the threshold is likely to reduce, perhaps to £10,000, in 2020. Ultimately HMRC’s goal will be to have most VAT registered businesses on the system.

Note that the taxable turnover figure includes standard-rated, reduced-rated and zero-rated income – but excludes exempt or outside scope income, ie, the threshold figure does not include subsidies.

Businesses will be required to use ‘functional compatible software’ to submit their returns, i.e. they need a software product which will link with HMRC’s system directly.  It will still be possible to use spreadsheets however a piece of linking software (commercially available for around £40/year) will be required and continued use of spreadsheets may only be of real interest to those with simple books.

Most businesses will find that the simplest way to comply is to use proprietary book-keeping software.

Most of the providers of software intend to have an MTD compatible product – check with your software provider or at www.gov.uk to find out if your software is MTD-ready.  If you use a cloud-based software product (where you log in directly to a website) you will normally always be working with the most up to date version, however software which is installed on your computer is likely to need upgrading to the latest, MTD-compatible, version.

This is a good opportunity to review your book-keeping system.  It might sound daunting to move from a paper-based or spreadsheet-based system, but you can expect modern software – particularly cloud-based software – to provide a significant time-saving.  When considering a system take advice from your accountant, but also consider whether there are any other agricultural-specific features you could make use of – some book-keeping systems are compatible with farm budgeting and farm management apps.