Making tax digital (MTD) is an HMRC initiative to move taxpayers to a fully digital tax system. MTD for VAT will be implemented from April 2019 with income tax following in ‘2020 at the earliest’.
MTD for VAT will mean a fundamental change in the way barristers meet their VAT compliance requirement.
The key practical issue is that VAT returns will no longer be submitted to HMRC by completing the VAT return online. Instead, VAT data will be sent to HMRC using ‘functional compatible software’. Functional compatible software must be capable of keeping and preserving records in digital form, creating a VAT return from the digital records and submitting this data to HMRC digitally.
So, for VAT periods starting on or after 01 April 2019, all barristers with turnover exceeding the VAT registration threshold will need to keep and maintain their accounting records in accounting software to be able to submit a VAT return.
Given the chambers system where members’ income and expenses are recorded centrally maintaining accounting records using accounting software has not previously been a practical necessity for barristers but now it will be mandatory. How barristers meet this requirement will vary, but the key issues to be addressed are having functional compatible software and keeping data in that software.
The software will not be provided by HMRC, so commercially available software that meets the requirements to be functional compatible software will need to be used. Not unsurprisingly accounting software providers have responded to this, so there is no question of a lack of availability of suitable software.
How the data is entered and maintained in the software is the issue. For a barrister there are three parties that could contribute to achieving this; themselves, chambers and their accountant. The amount one party does will determine what the others do. If chambers have the systems in place to support data being inputted to the members accounting software the barrister will not have to input the data themselves. Similarly a barrister may make the decision that they do not have the time to maintain their accounting records and delegate this to their accountant. So first the barrister will need to establish the support that chambers can provide to them to decide what they will need to do.
The assistance that chambers provides to its members to complete their VAT returns differs from chambers to chambers. Where assistance is provided there will be an expectation that this will continue. With each member needing to have their own accounting software this could be onerous for chambers. However, with the right systems efficiencies can be achieved that will provide the members with the support to meet their VAT compliance requirement and reduce the burden on chambers.
We can provide help and assistance on helping chambers meet the needs of members in addressing this new compliance requirement.
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