Many building and timber merchants are likely to be unprepared for the imminent introduction of the Government's new ‘Making Tax Digital’ initiative for VAT returns, warns Chris Fisher, UK Operations Director at business management software specialist ECI.

April 1st marks the deadline for UK businesses to meet the second phase of the government’s new initiative for VAT returns, ‘Making Tax Digital’. 

From this date, building and timber merchants operating above the £85,000 VAT threshold will need to ensure there is a digital link in place between where they store their data and where it is submitted to HMRC. Businesses that fail to meet this requirement could face significant penalties. 

If history is anything to go by, many small businesses are likely to be unprepared for the change. In August 2019 following the introduction of the first phase of MTD, HMRC had to send more than 100,000 warning letters to businesses that hadn’t complied with the new digital taxation regulation.  

In the long term, MTD will make VAT returns much easier for UK businesses - but like with any change in legislation, the transition can often be difficult.

The initiative was initially announced in 2015 as a way to limit incorrect tax returns, which cost the exchequer millions of pounds in unpaid VAT. In 2017-18 alone, there was an estimated £9.9 billion shortfall and it was put down to largely avoidable mistakes.

The process of the UK going digital for VAT returns came into effect in April 2019. Although HMRC is still allowing businesses to cut and paste data from their accounting and finance software into a programme that allows them to digitally send HMRC a VAT return. Yet time is quickly running out for those businesses who are right clicking. The looming deadline for this to stop is 1 April 2020.

With weeks to go until the deadline, it’s important that merchants act if they haven’t already. If you’re unsure about what you need to do, you should seek specialist advice from your ERP or business software management provider.