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There is growing concern among farmers and accountants about plans from HMRC to have businesses keep digital tax records from next year.
The first major step in the Making Tax Digital (MTD) process is four months away (1 April 2019), when all VAT-registered businesses with an annual turnover over £85,000 will be required to keep digital VAT records.
A report by a House of Lord’s sub-committee last week found that the rollout of MTD for small businesses has been inadequate and should be delayed until at least 2022. In response, HMRC said it was “disappointed” with the report, but announced no plans to postpone MTD.
At a seminar in Moneymore on Monday, Lowry Grant from PKF-FPM Accountants said that compliance with digital tax rules could cost an average farmer between £300 to £500 each year.
“HMRC will want to be able to drill into your accounting system and pick out information and then ask questions about it. It will be like having a VAT inspection every time you submit a return,” he said.
For businesses that submit annual VAT returns, MTD does not apply until October 2019. However, digital VAT records will be required for all businesses, regardless of turnover, by April 2020.
Grant said that HMRC eventually wants digital records of all business transactions on a quarterly basis for calculating all taxes and this could be extended to income tax as early as April 2020.
HMRC has said some businesses will be able to apply for an exemption to MTD, in cases of poor internet connection and low levels of computer literacy, however Grant suggested that approvals for this will be hard to obtain.
“This is not going away, it’s certain. You will definitely need some support through this,” he told farmers at the latest CAFRE/Rural Support organised seminar.
Digital link
Guidance published on MTD for VAT indicates that a business’ digital VAT records must link automatically to HMRC.
“You will not be able to tally figures up and then re-type them into a VAT return,” Grant said.
HMRC has not designed its own software package for MTD and is instead depending on private firms to design computer programmes that will be compatible with MTD.
Grant estimated that around half of his farmer clients will want to avoid the MTD process completely by giving all invoices and receipts to accountants to allow them to file digital records of transactions, which can then be accessed by HMRC.
However, he acknowledged that this would be an expensive option for farmers.
“The smart money is doing as much as you can yourself,” Grant said. In practice, this could mean farmers filing digital records of transactions on a standard Excel spreadsheet and then giving it to accountants to convert into a suitable MTD format.
First year
In the first year of the MTD process, HMRC is allowing Excel spreadsheets to be used by businesses for records of business transactions.
“You will not be able to engage directly with HMRC with spreadsheets from 1 April 2020. After that, spreadsheets may be useful for giving records to your accountant, but they will have to convert it into a format that HMRC will be able to interrogate,” Grant said.
For farmers that want to continue doing VAT claims themselves, Grant said that there are a range of accountancy programmes available that are compatible with MTD.
He said programmes typically cost around £25/month, but other costs include the time associated with getting used to the system.
“Your time getting away from the books and into software could be worth £400-£500 to you.
It could easily add up to £1,000 to get yourself up and running with MTD,” Grant maintained.
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