Farmers and rural businesses are not prepared for forthcoming changes to VAT returns, and should act now to avoid financial penalties.
That is the message from rural-based accountants Old Bill, who say that the real issue is with people who are still unaware of the changes.
A recent survey by the Chartered Institute of Taxation (CIOT) revealed that only 12% of people submit their returns via software, as required for Making Tax Digital (MTD).
Farmers and rural businesses will have to keep records of all of their sales and purchases in a digital format, in MTD-compliant software, and submit returns through that software from 1 April 2019.
This means keeping the name, date and tax rate of all purchases and sales – from feed and fertiliser to livestock and milk – in one software package.
Janet Woodford, rural senior manager at Old Mill, said: “Currently, farmers tend to have one bit of software do to their invoicing, a spreadsheet for their accounts, and a paper file for their receipts.
“Bringing all of that into a digital format will involve quite a change of approach – but if they don’t do it they won’t be able to submit their VAT return, incurring penalties from HMRC and meaning they won’t be able to claim their VAT refund.”
Although accounting software like Xero, Quickbooks, Sage and Farmplan all comply with MTD, it has to be the latest version – and many people will have to upgrade their software. It may also take time to get used to keeping all of their records online.
Taxpayers won’t have to keep their records updated daily – they can upload it all in one go before submitting their VAT return.
But with Making Tax Digital likely to be rolled out to self-assessment tax returns soon, alongside the move to Real Time Information, it’s worth getting ahead of the game, Ms Woodford said.
“There are benefits to having all of your information in one place – you can get an up-to-date snapshot of how the business is performing, and have all of the information to hand should your bank manager or accountant require it,” she added.
“It will also speed up the VAT and tax return process and enable you to be more proactive with your financial management.”
In November last year, an influential House of Lords Committee criticised HMRC for 'failing to adequately support ' small businesses with the introduction of the new tax plans.
