HMRC is continuing with its drive for digitalisation and in particular the need to have digital VAT records. Whilst this has proved a challenge for some farmers already subject to these rules, I would argue that it should also be seen as an opportunity to obtain more information about your business and make better decisions.
All farming businesses are affected by Brexit and changes to agricultural support payments and some will need to make changes if they are to thrive in the future, so it is crucial that you have all the information you need to make these decisions.
As part of the Government’s 10-year plan to modernise UK tax administration, with the ambition to make it one of the most advanced systems in the world, all businesses will have to comply with HMRC’s Making Tax Digital (MTD) rules from April next year. Businesses with a turnover of more than £85,000 have had to keep digital VAT records and send VAT returns using compatible software since 2019. By 2023 the rules will also apply to unincorporate businesses and landlords with an annual income of more than £10,000.
With many farmers working in excess of 50 hours a week - or at some times of the year 100 hours a week - it’s understandable that there isn’t the time, or desire, to spend any downtime preparing for MTD, but doing the groundwork to prepare for the transition now will make life easier and could save you money in the long-run.
The incoming requirements will help simplify record-keeping and will benefit your business, so it’s important to choose the right accounts package or to make the most out of the one you already have. There is a wide variety of programs but some are specifically tailored for farmers, including Farmplan, Landmark and Summit. Others such as Xero have bolt-ons for farm businesses.
You will need to know if the software you’re choosing links to HMRC, as this is a requirement of MTD and will save time when submitting VAT returns. It’s also wise to check if it is compatible with other systems you are using or plan to implement. Find out if it can link to your bank account and if it is cloud-based, as this will automatically back-up your data and save you having to install updates. A demo can be useful before you commit to see how user-friendly it is.
It is also worth considering what package will be best supported by your broadband connection. An unreliable connection may mean a cloud-based package is difficult to use. In this case, desktop software would be a better alternative, allowing you to view and update records offline.
These robust systems create less room for error. They provide real-time information so you can see how your business is performing financially throughout the year, allowing you to monitor cashflow and budgets and help you plan to minimise and anticipate tax bills. It’s therefore important to invest in the set-up and training of whichever software you decide to use to avoid costs correcting errors further down the line.
HMRC is keen ttress that the roll-out of MTD does not create additional tax liabilities for businesses and will not change when tax needs to be paid. Instead, its aim is to make tax administration more effective and efficient; cutting down on unnecessary duplication, leaving less room for error, and making it easier for taxpayers to get their tax right. However, it is easy to be cynical and say that if HMRC has more detailed information from businesses, that they may collect earlier or more frequent payments. Time will tell on this point.
It’s clear, however, that those impacted by the changes feel challenged, particularly in agriculture. Faced with broadband issues in rural areas and perhaps less experience with computer software, despite many technological advances in the industry, farmers may find it more difficult to adapt to digital tax. Many farm businesses have also diversified, making VAT even more complex.
Despite a campaign by the NFU to halt or delay the MTD’s extension, in little over 12 months businesses need to be ready so it’s important to start the transition as soon as you can. Becoming compliant with MTD and using digital software has been a major change and undertaking for many businesses but, despite the hassle, take it an opportunity of having up to date real-time financial information which can be used to manage your business.