From 1 April 2019, all businesses with a 12-month rolling turnover of £85,000 (the current VAT threshold) or more will be required to comply with HMRC’s Making Tax Digital (MTD) strategy when filing their VAT returns. With a significant proportion of UK barristers likely to fall within this threshold from the start, it is essential that they begin preparing for the changes now in order to avoid potential fines.
Whilst this is likely to apply to a large number of UK barristers, those with a turnover below this threshold may also opt to voluntarily file their VAT returns through MTD. Additionally, the fact that the majority of barristers are self-employed means that each individual will need to understand the HMRC’s changes and ensure compliance ahead of next year’s deadline.
Our research indicates that most barristers will be using the existing HMRC portal for filing their own VAT returns. However, many may be unaware that from next May, this will no longer be sufficient. Instead, barristers will be required to use ‘functional compatible software’ to maintain digital business records and file relevant VAT information electronically.
VAT returns submitted under MTD require barristers to submit details of the digital records in addition to the information currently included on VAT. It is expected that this improved access to data will allow HMRC to process VAT returns and deal with other queries faster and more efficiently.
In recognition of the fundamental changes that MTD will require businesses to make to their accounting practices, HMRC is likely to adopt a more lenient approach to MTD compliance in its first few months. However, it is important for barristers to be aware that they still only have a narrow window for compliance. By starting their preparations now, barristers can ensure that suitable software and processes are well established and any issues addressed well ahead of the April 2019 deadline.
Barristers within the scope of MTD will need to be compliant for VAT return periods starting on or after 1st April 2019. For example, if the VAT period starts 1 June 2019, the VAT return for the period to 31 August will be the first return which must be MTD compliant.
For barristers, other long-term benefits of the switch to a digital system are likely to include reduced compliance costs and the ability to make use of real-time information when conducting business and financial planning. For example, access to up-to-date figures about profit and loss could help these barristers to plan cash flows and to operate in a more tax efficient manner.
For individuals currently falling outside of HMRC’s £85,000 turnover threshold, it may be tempting to simply assume that MTD does not apply to them. However, for barristers approaching the threshold, adopting this approach could result in them being ‘caught out’ if income continues to increase. This is especially relevant as HMRC is expected to lower its turnover threshold in the years to come. Instead, it is vital to keep a careful eye on revenue whilst gaining an understanding of MTD and the changes needed to ensure compliance. Where fee clerks are responsible for dealing with a barrister’s tax affairs, it is also important to check they are fully informed about the implications of the new changes and implement adequate systems and processes in good time.
There is no doubt that the new rules to be introduced by MTD will require barristers to make significant changes to the way they submit VAT returns and it may be tempting to simply delay these until closer to the April 2019 deadline. However, by taking steps now to learn how to switch to a digital system, barristers can iron out any compliance issues in plenty of time.
Top tips for Making Tax Digital compliance:
Establish ‘functional compatible software’
With only a narrow window to ensure MTD compliance, barristers should waste no time in checking that they are using an online accounting package deemed ‘functional compatible software’ for MTD purposes. Where multiple software packages such as Xero or spreadsheets are used to record VAT data, these must be joined by a ‘digital link’.
HMRC is currently in the process of testing its MTD portal with selected businesses and software providers. Learnings from these trials should provide barristers with increased clarity around what ‘functional compatible software’ will look like and the options that should be available in the months to come.
Get your timings right
A key consideration for barristers when moving to an online accounting package should be the timing of the process. As it is often most efficient to make the transition at the end of an accounting period, it is important to begin preparing for a switch to digital accounting well ahead of the year end.
Seek expert advice
Speaking to a third-party advisor or software provider before the April 2019 deadline can help to provide barristers with peace of mind, ensuring that online accounting packages are sufficient for MTD compliance. Advisors will also be able to provide valuable updates about any important MTD developments as the deadline draws closer whilst providing access to software and VAT expertise.
Take advantage of efficiency benefits
For barristers falling outside of HMRC’s turnover threshold, a switch to MTD can help to boost efficiency when filing VAT returns, reduce compliance costs and provide valuable access to real-time financial data. Making sure they are up to speed on the new system at the earliest opportunity will allow individuals to begin reaping the rewards of digital accounting now.By Joanna Fergusson an assistant manager at accountancy firm, Menzies LLP.
By Joanna Fergusson an assistant manager at accountancy firm, Menzies LLP.