The Importance of Making Tax Digital to Retailers & Hospitality Businesses

As of April 1 2019, half a million VAT registered UK businesses have to comply with the new taxation standard Making Tax Digital. VAT registered businesses must now keep digital records of their transactions and submit VAT returns using a digital link to HMRC.

From April 2019, quarterly reporting is:

• Mandatory for VAT for all VAT-registered businesses with a turnover above the VAT registration threshold (£85,000)
• Optional for VAT-registered businesses with a turnover below the VAT registration threshold (£85,000)

From April 2020 (at the earliest), quarterly reporting is:

• Mandatory for income tax and corporate tax (as appropriate) for all businesses (including landlords) with a turnover over the VAT registration threshold (£85,000)
• Optional for businesses (including landlords) with a turnover below the VAT registration threshold (£85,000)

Headlines for retailers & the hospitality industry

• As many as a fifth of all business owners have not heard of Making Tax Digital
• The Federation of Small Businesses FSB has claimed that implementation costs for MTD (including training and licence costs) amount to £2,770 per year per business
• On the other hand, Sage notes that businesses could save around £17,000 per year. This is due to less time being spent on manual administration and the benefits of having greater oversight, transparency and more accurate financial data.
• Many of the UK’s 168,000 smaller retailers and 183,000 hospitality businesses will struggle to find a solution that is affordable
• According to the Association of Convenience stores, just 53% of retailers use an Electronic Point of Sale system
• Every year, around 700,000 businesses miss filing their tax returns on time. Increasing use of digital accountancy platforms appear to be reducing late submissions – and the associated fines.

What is a Digital record?

Each and every transaction your business participates in will require a digital record.

That record must include: the name of the business (or organisation), the address of the principle place of business, the VAT registration number, details of any VAT accounting schemes used.

When supplies are made that record must also include: the value of supply, the rate of VAT charged and the time of supply.

If there are multiply supplies subject to the same rate of VAT supplied at the same time then these do not require individual records (a single invoice can cover it). Conversely, if you supply multiple items at different VAT rates (e.g children’s shoes and adult shoes) then you must split the invoice and create separate digital records.

What is a Digital Link?

In most cases a digital link refers to an API connection. An API connection is a feed which allows two or more pieces of software to send data to one another at a regular interval. For example, transaction records and inventories can be sent via a feed from your EPOS system to your accounting system. Additionally, your online shopfront (for example e-commerce, Amazon or eBay) can also send transaction data to your accounting software. Your accountancy software can then digitally communicate with HMRC’s systems on a “real-time” basis, updating your VAT account and ending the annual tax return!

These are the sort of provisions required by MTD. Instead of manually updating separate systems, your separate pieces of software will speak to each other – saving you time and keeping you compliant. Manually updating systems is more prone to error and you are more likely to fall behind. By eliminating the manual aspect better oversight can be achieved by both HMRC and by the business.

The key to a digital link is allowing systems to transfer data free of interference. In the initial rollout of Making Tax Digital, exporting and importing data manually will be allowed. For the first year of implementation (VAT periods commencing between 1 April 2019 and 31 March 2020) businesses will not be required to have digital links between software programs. However, the submission of the VAT return must be done via API (using HMRC approved accounting software).

EPOS and MTD

Electronic Point of Sale software is an excellent example of digital record keeping. By integrating your EPOS system into an HMRC approved accounting system, you can get MTD compliant quickly. At RMS, we have been promoting more effective integration between key pieces of business software long before MTD became law. There are huge business advantages to having integrated systems:

• Huge reduction in manual administration
• Greater oversight and a “single source of truth”
• More informed decision making (at more frequent intervals)
• Reduction in the sort of mistakes that could lead to costly fines or bad business decisions

How Much Will MTD Cost?

The FSB states that MTD implementation will cost an estimate of £2,770 per business – a cost that could be prohibitive to the UK’s 168,000 smaller retailers.

At RMS, we advocate a cost effective solution. Our Register software, ideal for smaller retailers & hospitality businesses, starts at £28.50 per calendar month (for a single till).

Integrating Register into popular accounting software such as Xero, Sage Cloud or Intuit Quickbooks costs £39 per calendar month.

The cloud accounting software itself can range from £18-£22pcm on a standard plan with free trials and discounts appearing regularly.

This brings the annual cost of MTD compliance through RMS register (on a single till) to £1026. That is just 36% of the figure quoted by the FSB.

If you’re interested in a cost-effective, easy-to-use, MTD compliant EPOS setup then contact us today.