South East: Thousands of businesses unprepared for digital taxation rules

Analysis from audit, tax and consulting firm RSM suggests there could be as many as 134,000 VAT-registered businesses in the South East unprepared for new digital taxation rules which come into force from April next year.

Statistics from the Office of National Statistics show that in March 2018, there were 404,555 VAT-registered businesses in the South East.

However, the latest RSM research carried out by YouGov suggests that up to one third of businesses are unprepared for the new Making Tax Digital rules, which are effective from April 1, 2019.

Making Tax Digital (MTD) is the Government's ambitious plan to bring the UK's tax system into the 21^st century by transforming the way taxpayers interact with HMRC.

With only a few exemptions, VAT-registered businesses trading over the VAT threshold of £85,000 will be required to keep records in a digital format, ensure that the transfer or exchange of VAT information is digitally linked and submit their VAT return information to HMRC using MTD compatible software.

Any business affected by these changes must ensure that they are using MTD compatible software by April 2019. To be ‘compatible’ the software must include an Application Programme Interface (API).

The API will create a link between the business’s accounting software and HMRC's systems. The API will enable the business to submit their VAT return figures to HMRC directly from their accounting software.

HMRC has indicated that there will be a 'soft landing' period between April 2019 and April 2020 during which there will be no financial penalties for record keeping failures, nor will there be a mandatory requirement for there to be a digital links between the accounting software which make up the VAT Return records. However, there must be an API from the outset creating a link between the accounting software of the business and HMRC.

Philip Munn, VAT partner at RSM, said: "Making Tax Digital is one of the biggest shake-ups in tax administration for over 20 years. But with just six months to go before the rules come into force, there's a worrying number of VAT-registered business that are completely unaware of the changes. And many of those that are aware have an awful lot of work to do to get ready.

"VAT-registered businesses really need to make the next six months count, to ensure that their software, systems and people are all ready for the change."