Our new publication on Making Tax Digital for VAT simplifies some of the language and gives examples of businesses you may be able to relate to.
In general the requirements will place different pressures on businesses depending on how complex their VAT position is. For simple VAT structures there are software solutions available that will quickly make you compliant. For more complex VAT profiles and group companies life may not be so straight forward.
HMRC released its latest Making Tax Digital for Business (MTDfB) update on Friday 13th (of July). However, it was not the horror show you might expect and the release has narrowed the level of uncertainty facing businesses in the run up to April 2019.
Key information on Making Tax Digital for VAT
The new process
Some important phrases
FUNCTIONAL COMPATIBLE SOFTWARE
This is a software program, or set of programs, that can record and preserve digital records and communicate directly with HMRC. Packages like Sage (v 24 or later), Xero and Quickbooks for example, are classed as functional compatible software. If you are already using them to file your VAT return direct to HMRC then you are MTDfB compliant as long as you adhere to the rules of processing and retaining data.
These are software programs that are capable of recording and preserving digital information but do not have all the attributes of functional compatible software like communicating directly to HMRC. For many businesses this may be a combination of bespoke accounting ledgers, legacy accounting systems and spreadsheets. To be MTDfB compliant, the information stored in these digital records needs to be shared using Digital Links.
API (APPLICATION PROGRAMMING INTERFACE)
This is like a pipe between two software solutions that allows data to pass between them both without human intervention. It is via this ‘pipe’ that HMRC require you to share your VAT information with them from April 19 onwards. If your accounting system is not API compatible you can use Bridging Software.
IT Professional Services (ITPS) is expanding its data centre in County Durham after securing a £3m financial package from HSBC.
ITPS specialises in information and communication technologies. They will use the funding to meet customer demand by adding a second data hall to its existing data centre.
The new data hall is in ITPS’ high security, ISO27001-certified data centre. It will include over 3,000 sq ft of fully-serviced rack space and sit alongside its onsite dedicated workspace recovery centre. The expansion is expected to generate new jobs across the company, from engineering to administration roles.
We worked on improving ITPS’ information management ahead of its deal with HSBC.
Graham Dotchin, associate at Tait Walker, commented:
“It has been fantastic helping ITPS shape its significant volumes of data into manageable insights. We are sure this investment will allow them to continue its impressive growth story.”
Michael Jopling, ITPS finance director, said:
“Building the new data hall underpins our second stage of ambitious growth, and we could not have done this without the great support we’ve received from HSBC.
“It means we will be able to create new jobs in the North East, and ensure we are competitive for both national and international clients.”
Tony Leech, area director for HSBC North East, added:
“ITPS is a 21st century company looking to meet the exciting opportunities in a quickly evolving industry, and we are very excited to be a part of this next step of its evolution.”
Founded in 2000, ITPS provides a full range of strategic IT consultancy, implementation, data centre services and unified communications and they also provide support services and workspace and disaster recovery.
Is your business registered for VAT and does it have a taxable turnover of over £85,000? If yes, from the 1 April 2019 your business must comply with new Making VAT Digital rules or face fines of up to 15% of your annual VAT bill.
As yet, HMRC hasn’t announced any further penalties for non-compliance. The main issue will be when taxpayers continue to submit their returns using the old system. Unfortunately, as the VAT return will not be properly “furnished” this may mean that the default late payment surcharge regime applies even though the taxpayer thinks they have done the right thing and paid their VAT on time.
What does it mean for businesses?
1. Electronic Filing of VAT returns
Businesses must move to a new system which allows them to report VAT return information directly to HMRC. For any return commencing on or after 1 April 2019 they can no longer submit a VAT return through their government gateway account. Instead, they must use software which is able to communicate with HMRC via an Application Programming Interface (API). If this is not in place, HMRC’s system may prevent them from submitting their VAT return in the traditional way. The penalties can be as high as 15% of VAT due.
2. Digitised Record-Keeping
VAT registered taxpayers covered by Making VAT Digital will no longer be able to maintain manual records in any part of their accounting system. For those who use software and spreadsheets, digital links must be in place by 1 April 2020 to transfer data between each function. It will no longer be acceptable to manually re-key data from one system to another.
What do we know from HMRC and software providers?
Unfortunately there isn’t as much certainty and guidance as we would like. HMRC has drafted a public notice which sets out the changes to legislation, a timetable and what will be expected. HMRC has a small pilot trial and about 60 of the main software providers are involved. Businesses should be able to elect to be included in a further trial this October.
There is some movement from software suppliers. Some have created API enabled spreadsheets that will allow a “bridge” to be made between the businesses records and HMRC VAT return system. However, this is a first fix. The largest providers have confirmed that Making VAT Digital is being treated as a priority and a patch will be available in good time. All providers involved in the trial have performed tests and submissions. It’s understood that from July tests will be carried out on the more complicated aspects such as partial exemption and VAT group reporting.
What can you do now?
While the lack of detail can make it feel like there’s little to be done ahead of the deadline, it’s worth ticking off the following steps to get yourself in a good position for when HMRC release further clarification:
- Ensure you understand how MTD affects you. Make sure your team is trained so they also fully comprehend the requirements.
- Ensure that the software you use to produce your VAT return figures is API-enabled in time for April 2019. Your software provider will be able to update you. Alternatively, you can acquire an API enabled spreadsheet to bolt on as an interim measure. These are coming to market now and should develop and improve in the next few months.
- Digitise all parts of your record-keeping and ensure that the VAT return can be created from those digital records. For businesses using a basic spreadsheet approach or manual records, it’s time to look at software options.
What exemptions are available?
While exemptions will apply to a minority of businesses, the extent of Making VAT Digital means it’s vital to evaluate whether your business falls outside the regime. Charities and academies for example may well be exempt.
The key is that exemptions apply to VAT registered businesses where the taxable turnover is £85,000 and above. Many will be registered for VAT but will be under this threshold. They should therefore be able to opt out and continue as they are now. Unfortunately, how the opt out process works is still unknown and we await further guidance from HMRC.
This article originally appeared on the blog of MHA MacIntre Hudson.
We caught up with Atlas Cloud CEO, Pete Watson
1. Tell us a little about Atlas Cloud
We provide a range of Managed Services such as Hosted Desktops and cloud-based services, mainly with SME businesses. We are passionate about letting business owners focus on building their business and strategy without being distracted and concerned about IT; they can leave it to us and focus on growth.
All of our services are scalable and flexible. Our agile business model and technical expertise enable us to deliver quickly as to their business and industry demands. We pride ourselves on high quality support, services, and being innovative with new solutions. Therefore, our customers can take advantage of new technology that drives productivity, security and compliance around areas such as GDPR without using a huge amount of budget.
2. How do you see the future for your business? Where will the next 5 years take you?
Most of our customers are North East based, but we do work in other parts of the UK too, including the South East, Yorkshire and the North West. We have grown by over 100% in the last 12 months and we’re hoping to continue on this path and expand our expertise. We will be focusing on our core business solutions and our partnerships, with the likes of Microsoft, Citrix and Sage as we are the cloud partner for the UK and Ireland.
3. What would be your top tip for someone setting up their own business?
My advice would be specifically to owners of fast growing companies who are looking to raise finance. I’d say ‘give yourself more time to execute’. Having been in the position of raising finance, I would recommend giving yourself 18+ months runway to actually take the cash in to your business and execute your plans. It’s difficult trying to grow the business if you’re constantly raising money. Things always take longer than your best guess.
4. What do you think are the biggest challenges for fast growing businesses?
It’s definitely people and culture. Getting the right people at the outset is a challenge for all businesses, but keeping those people as you grow (especially if it’s fast paced growth) has to be the top priority. You want people that you have good working chemistry with. People are the heartbeat of the organisation. You need to maintain the ‘small business, innovative culture’ that they joined you for, even as your business scales up and changes. You want to be the employer of choice, in fact, you have to be the employer of choice to get the right people in your business.
It’s easier said than done. For us, we try not to be a ‘stereotypical IT firm’. We like to do things differently. We give our team members the scope to be creative and entrepreneurial, to make sure they always know how they fit in the business, how valued they are and how they can help the business succeed and also meet their own ambitions. We offer unlimited holidays, regular incentives and our team can wear whatever they want to work. We find this builds great teamwork and people work as many hours as it takes to get the job done when things are a little more flexible. They don’t even need to come in to the office if they don’t have to, but the work is always done and our team are always finding new and better ways to work together.
I guess my last bit of advice would be to harness the talent and energy of all generations. I think there is a fair bit of stigma around the flexible working preference of millennials. I find that their enthusiasm and talent is great for business, especially one like ours where they already understand what we do and why it’s important to business growth. Be a little flexible and be the employer they choose to grow with.
5. If you could be anything or could have had any job – what would it be?
I’ve always wanted to build a business, be an entrepreneur and do something different. Even when I was at school, from around the age of 8. I used to get my mum to buy me toys at the Quayside market and then I’d sell them at school. 100% profit! This was maybe not quite business reality, but it was a fun start.
I love the industry I work in. Cloud IT services are growing at a rate of over 20% a year and the managed service market is forecast to grow by 26%. It’s a great environment to stay creative and innovative, which is what I enjoy.
Making Tax Digital for VAT comes into effect from 1st April 2019. However, a HMRC pilot commences April 2018.
Businesses with a taxable turnover above the VAT registration threshold will be required to preserve digital records and provide VAT returns using compatible software. Software is the biggest challenge in moving to a digital VAT system. Businesses will have to use functional compatible software. This is software that connects to HMRC systems via an Application Programming Interface (API). HMRC want to pilot the changes in advance of April 2019.
There are many benefits of taking part in the pilot, for example; learning how to submit online at your own pace with increased HMRC support, influencing the digital system moving forward and providing feedback and immediate access to check if you’re completing the return correctly. This comes with the added security of no additional compliance checks or scrutiny.
Regardless of whether your business decides to participate in the HMRC pilot you should still be beginning to prepare for the digital changes. Businesses should be contacting their accounting software provider/internal teams to ensure they are aware of the changes and establish whether the existing software is adequate and prepared for the changes.
For further information, please contact our VAT specialist, Nigel Smith.
The last four years have seen the appeal of ICOs (Initial Coin Offering) skyrocket as an alternative to traditional fundraising methods.
An ICO is similar to an IPO, with the potential to raise significant funds very quickly. Successful ICOs have reported gains in value of between 100% and 500%. For investors, the temptation to maximise their investment therefore often overrides the careful consideration of the risk attached to backing such projects.
How does it work?
ICOs are increasingly popular with digital start-up companies. Initially, a stake of the business is sold to raise capital for a project. In exchange for digital legal tender (such as Bitcoin) investors purchase an allocation of “tokens” representing their investment in a business.
These tokens become functional currency once the ICO reaches its funding goal objectives and launches its product/service.
Like any capital investment, investors are motivated by the possibility that once a business is established and successful, their cryptocoin currency value will be higher than the sum they purchased it for at the project outset.
The term ‘Crowdsale’ is synonymous with ICOs. The “tokens” acquired are not sold as typical financial assets/securities, but rather as a ‘digital product’. This differs to ‘Crowdfunding’ where the funds raised are essentially donations from individuals who support a particular project or mission.
The risk to investors is that ICOs are not regulated and as a result, funds lost due to fraud are never recovered. The lack of regulation of ICOs avoids the costs associated with regulatory compliance and the use of financial intermediaries, making this attractive to certain cost conscious start-ups.
Cryptocurrency (such as bitcoins) can be quickly and easily transferred across geographical and jurisdictional boundaries. This inherently makes them difficult to trace. No central record of ownership exists in respect of cryptocurrency, and approximately 10% of all ICOs may be fraudulent.
In some jurisdictions like China and South Korea, ICOs as a funding method are banned entirely. This is because of the risks attached, lack of regulation and potential for economic instability due to the millions of currency which can be raised almost instantaneously.
In May 2017, an ICO for a web browsing platform reportedly generated approximately $35 million in under 30 seconds. This evidences the sheer scale which can be achieved through this funding mechanism.
ICOs and other avenues of cryptocurrency funding are a grey area at present and likely will become regulated in future. This may directly affect the perceived ‘benefits’ of an ICO. The cost and time spent to comply with regulatory requirements could reduce the advantages of an ICO over traditional funding methods.
At the end of January 2018, US regulators The Securities and Exchange Commission (SEC) intervened when Arise bank raised $600 million through fraudulently selling its own cryptocurrency.
The action was taken to “halt an ongoing, fraudulent and unregistered offering of securities and to protect investors who are being actively defrauded”.
This was the first case where a regulator had appointed an independent receiver to seize assets, to take steps to protect investors’ funds which had been acquired through illegitimate means.
This supports a broader crackdown on unregulated cryptocurrency and existing warnings from regulators about the rising use of ICOs. It indicates that this complex and contentious area is likely to be subject to further scrutiny in future.
When considering financial investment, it is always recommended to take independent advice from a financial adviser in order to protect your personal wealth and business interests.
For further advice please contact our Forensics team.
HMRC had their latest consultation on Making Tax Digital for VAT on 18th December 2018, which consisted of draft regulations and set out the plans in more detail. The changes will come into effect from April 2019.
Businesses with a taxable turnover above the VAT registration threshold will be required to preserve digital records and provide VAT returns using compatible software. In an addendum to the original draft, businesses will be allowed to use compatible and approved software alongside spreadsheets to provide VAT returns.
The good news is that HMRC are willing to listen to business’ concerns and software providers are working on suitable solutions. The bad news is the implementation of these major changes in April 2019 are still scheduled to clash with the looming Brexit date. Interesting times ahead!
For further information, please contact our VAT specialist, Nigel Smith.
This year’s Budget is being hailed the ‘Budget for Millennials’ with a focus on the UK economy being fit for the future. The investment in the future of the Digital and Tech sector is very encouraging, some key highlights include:
- The Government want the UK to be a leader in new technologies such as AI, FinTech and immersive tech – the North East is strong in these areas.
- Large amounts of central funding focused on technology and knowledge intensive sectors – additional £2.3bn to be added to direct R&D spending from 2021/22 taking total spend to £12.5bn per annum by 2021/22
- Tech City UK to expand and become Tech Nation to support regional tech start ups across the UK. £21m of funding over 4 years, we have a regional hub in Newcastle
- Further £1m to extend UK Games Fund to 2020, which will benefit early stage video games developers
- The increase in R&D Expenditure Credit rate to 12% from January 18 will benefit large innovative companies and certain SMEs
- Investment to upskill 8,000 computer science teachers and funding for retraining (with a focus on digital skills).We are well aware of the shortage of skills for our tech businesses so this is good news!
- The changes in EIS and VCT rules to increase their focus on knowledge intensive industries will make more capital available for high growth businesses in the sector
The acquisition expands the City & Guilds Group’s remit in technical and skills development, and strengthens its offer in STEM-related industries. It also further expands the Group’s move into training delivery – a service it originally offered when it was first set up in 1878, and which has continued to grow since the Group’s acquisition of The Oxford Group in 2015.
Gen2, in partnership with other industry bodies, will now explore becoming one of the first Government-backed Institutes of Technology – plans for which were outlined in the Government’s Industrial Strategy in January 2017.
Speaking about the move, Chris Jones, Chief Executive of the City & Guilds Group said: ‘Technical skills delivery is a core part of our heritage, and we are excited to expand our offer by bringing Gen2 into the Group. Our organisations share a clear purpose – changing people’s lives through skills development. The engineering and nuclear industry is anticipated to grow extensively in the future, particularly in Cumbria, but it cannot grow unless it has a skilled workforce. Gen2, as a City & Guilds Group business – and potentially as a new Institute of Technology – will be at the heart of ensuring the industry can thrive in the future.’
Adding to this, Mike Smith, OBE, CEO of Gen2 said: ‘Gen2’s acquisition by the City & Guilds Group is testament and acknowledgment of the high-quality, sector-leading technical training and education capability that the company has developed since it was established in 2000. Being part of a wider, larger group will enable Gen2 to continue its growth trajectory and, working with the other companies within the City & Guilds Group, we hope to be able to offer our customers and their learners the best training and education to meet their future needs.’
Lesley Bowen, People Transformation Lead at Sellafield Ltd and Independent Director on Gen2’s board, said: ‘This is fantastic news for Gen2 and great news for West Cumbria. The sale to the City & Guilds Group not only results in securing the company’s long-term future, but also enables Gen2 to sustainably grow further, supporting not only our training needs, but those of the wider energy and advanced manufacturing employer base both locally and nationally, which further underpins our drive to establish West Cumbria as the Centre of Nuclear Excellence. Over the years Gen2 has established an unrivalled reputation for the quality of its training and education. It has proved to be one of the most successful examples of a ‘spin-out’ company, having grown from an initial 21 staff and 71 apprentices in 2000, to over 160 staff and more than 1,300 apprentices currently learning with the organisation.’
Jonny Lowe, Head of HR at Iggesund Paperboard and the former Iggesund Member Director on Gen2’s board said: ‘Iggesund has supported Gen2 since it was established in 2000. Gen2 has grown over the years into a highly respected leader in technical training and education, and has provided us and other local employers with a steady flow of highly qualified and competent engineers through its apprenticeship programmes. We believe that the City & Guilds Group is an excellent fit to ensure Gen2 can continue from strength to strength, building on the excellent work the employees have done to make the company what it is today.’