The past 18 months have been hectic for advisers of small businesses as they supported clients scrambling to navigate cashflow uncertainty and stimulus packages such as the furlough scheme. The challenges for practitioners are not over yet, though, as hot on the heels of pandemic-related difficulties comes the next wave of HMRC’s Making Tax Digital (MTD) initiative.
As you’ll be well aware, clients with a taxable turnover under £85,000 who charge VAT will have to comply with MTD from April 2022. Hundreds of thousands of affected businesses will have received a letter from HMRC informing them of this next phase and that they’ll soon be required to maintain their financial records digitally and file VAT returns through approved software – a shock to the system for many of them.
Small businesses may see this as a burden, but practitioners know that making the mandated changes also gives small and medium-sized enterprises (SMEs) the opportunity to embrace new technologies and operate more efficiently. Here are some actions you can take with, or for, your SME clients to ensure MTD compliance is as painless as possible.
Anti-money laundering can be a potential banana skin for accountants during the agent services account migration
Check deadlines
Small businesses should be given as much information about the legislation as possible, including key deadlines. In addition to answering their queries directly, advisers can point clients towards HMRC’s own MTD for VAT page, which provides a wealth of useful insights.
It is crucial to encourage your clients to diarise the key dates when VAT returns are due to avoid last-minute panic. If businesses pay their VAT in quarterly periods, their deadline for VAT is usually one month and seven days after the end of the VAT period, which includes the time for the payment to reach HMRC.
However, those using the annual accounting scheme will have different deadlines. Those who aren’t sure when their VAT returns are due should visit the HMRC’s VAT payment deadline calculator.
You may also want to advise clients that your capacity for support will probably be stretched given the volume of businesses you are guiding.
Sign up to new platform
Accountants will be very familiar with the online portal through which they have always listed the clients they want to submit tax information for. For MTD, HMRC has brought in the new agent services account – a platform intended to combine all relevant tax administration. Unless they sign up for this account, accountants will be unable to register their MTD clients and work on their behalf.
Anti-money laundering (AML) can be a potential banana skin for accountants during this agent services account migration, and they need to ensure their AML checks are up to date. If advisers set up an agent services account for MTD for VAT, they must confirm they have AML supervision. This is true for everyone handling tax for a third party, whether that’s an established accountant or someone doing a friend’s tax return for them.
Well in advance of the deadline, it’s important for accountants to confirm they have paid the appropriate fees to their AML supervisory body or directly to HMRC.
MTD is an opportunity to put the right processes in place, with advisers playing a key role in driving this change
VAT pitfalls
Registering for VAT has always been a rather convoluted process. When registering for MTD for VAT on behalf of a client, the business has to verify a number of links via email – adding further layers to the process compared with the previous iteration.
Crucially, accountants will also need to copy existing clients for MTD for VAT across from the traditional online portal to the agent services account. Advisers can do this only when they have completed their obligations with non-MTD VAT. This contrasts with the MTD process for income tax self-assessment – and its extended deadline of April 2024 – for which accountants can register clients up to a year in advance. Only once a client has submitted their last non-MTD VAT return, and paid any outstanding liability, can they register for MTD for VAT.
It is therefore important to get organised early to establish who is handling the registration process and who has access to the account, and then transfer clients across.
Broader digital change
It’s easy to view MTD as a necessary evil – something businesses have to comply with, even if they don’t really want to. But advisers have an important role to play in helping clients see the bigger picture. The pandemic has shifted consumer expectations of the digital experience. The speed and scale now demanded by customers is something that small businesses often struggle to deliver.
For SMEs that weren’t already considering any kind of digital change, MTD is an opportunity to put the right processes in place, with their advisers playing a key role in driving this change. Once small businesses understand and ultimately experience the benefits of MTD, it may serve to encourage digitalisation of other processes too.
This digital transformation can start with advising small business clients about the technology options available to them. MTD regulations require a range of digital records to be kept – from business name, adjustments to returns, rate of VAT charged on supplies, and more. Businesses may choose to use spreadsheets to calculate or summarise VAT transactions, but they will need a government-approved software tool to submit all this information to HMRC.
Unless a business has a legal exemption, HMRC will accept only VAT returns sent using MTD-approved software. It’s a good idea to assist clients with the search for a supplier – it may seem like an overwhelming choice, but assisting clients with the search is an important form of support. The list maintained by HMRC will help to narrow it down. This MTD-approved software should be able to pull information seamlessly from a business’s digital records to submit returns, saving time that can be better spent running the business.
Act now
Given the number of challenges facing small businesses, it can be easy to put off compliance with tax reform. April may seem like a long way off, but now is the perfect time for practitioners to advise affected clients on how to move from paper-based systems to digital.
Further information
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