Farm business to face new digital VAT regime

Farm businesses have just 15 months to get ready for new VAT rules that will require them to keep digital records and submit their VAT returns direct from their financial software.

Last year the government was forced to delay plans for introducing a Making Tax Digital (MTD) system for income tax until at least April 2020, to give businesses more time to adapt to the changes.

But HMRC has revealed it is pressing ahead with plans for Making VAT Digital (MVD), introducing changes to the VAT regime from 1 April 2019 for any business operating above the VAT threshold of £85,000.

See also: How will HMRC’s radical tax plans affect you?

The new rules mean farmers will need to make sure they have access to financial software that is compatible with HMRC’s own systems.

It is estimated only one in 10 businesses file online VAT returns directly from their software – with the rest choosing to manually enter VAT return figures onto the HMRC portal before filing digitally.

Software challenge

David McGeachy, head of VAT at chartered accountants Saffery Champness, said the switch from a manual calculation and reporting would require a “quantum leap” for some people.

“One of the biggest challenges will be the switch to compatible software, with only about 12% of all businesses currently filing their returns using a software package,” he said.

“MVD should allow HMRC to obtain VAT records data in a digital format that is more easily checked remotely using their existing auditing packages.

“Taxpayers may find VAT repayments and claims delayed if they are unable to provide VAT information in the format prescribed under the MVD rules.”

NFU pressing for delay

Michael Parker, head of tax for the NFU, said the union was pressing for a delay in implementation of the new regime, which it felt was far more onerous than the current online VAT reporting requirement.

A key concern was how practical it would be for many farming businesses given the poor digital infrastructure in place.

Many rural areas are struggling with upload speeds of less than 2mbps.

“It is suggested by the government that Making Tax Digital proposals will bring business tax into the digital age,” he said.

“However, for many of our members the digital age has yet to be delivered to them by the government.”

Mr Parker said he was worried that given the relatively complex nature of farm accounting and taxation it might also not be possible to get the tailored software solutions required within the proposed timescales.

A further consideration was that the proposed implementation date for the new rules coincides with the UK’s planned exit from the EU, which could result in other changes to the VAT system.

“The NFU believes that a delay in implementation, combined with substantive pilot tests across a wide range of businesses, is required before MTD for VAT becomes mandatory.”

NFU ‘too pessimistic’?

But Gary Markham, director at tax advisers and accountants Land Family Business, said he thinks the NFU is being too pessimistic about the effect of the new regime.

Moving record-keeping further online is a big opportunity for the farm sector, he said.

And software providers are already developing packages that are compatible with HMRC systems, so he is confident solutions will be available in time.

“Choosing the right technology will potentially, when used effectively, drive down the costs of accounts production and reduce administration costs considerably,” he said.

Having access to more up-to-date information would also help people make more effective decisions about the management of the business.

“I don’t think the industry should panic about MTD,” he said.

“We are professional food producers with, in many cases, more robust accounting and physical record-keeping systems than many non-agricultural businesses.”

Mr Markham offered some practical advice for farm businesses looking to prepare for April 2019.

  • If you use a manual book-keeping system, contact a member of the Institute of Agricultural Secretaries and Administrators or see if a family member can set up a computerised system or spreadsheet.
  • In many situations an experienced farm secretary will be cheaper than your accountant to oversee the reporting requirements.
  • If there is a limited internet connection on the farm, the farm secretary or accountant can make the quarterly report from another location.
  • Don’t make a hasty decision about buying any new financial software – it must be suitable for your enterprises.
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