Thursday, 22 November 2018

But Brexit aside ...

Everyone is focussed on Brexit. Something will happen on March 29. No-one knows what it will be. But there's something else happening.

On March 31, 2019, MTD happens. MTD is "Making Tax Digital". It means that a million unsuspecting small businesses, will suddenly find that they way they've submitted their VAT returns (and maybe others?) will suddenly not work.

Here's how it works now.

I calculate (actually, the computer calculates) how many sales I've made in each of the 28 EU countries. I apply the 28 different VAT rates to that, and that's how much tax I owe. I feed this in to a government (HMRC) web site (VAT MOSS), it adds up the total, and that's what I pay ... or rather, that's part one. I pay one lump to the VAT MOSS, and they pay from that to the 27 EU countries.

Then I work out how much I've spent in purchases and how much VAT I can reclaim on those purchases. Then I feed those numbers into a different HMRC web site, and it works out how much VAT I pay to HMRC (or what refund I get). How come a refund? Because *all* my purchases are UK, but only a moderate percentage of my sales are UK.

On March 31, 2019, all that changes.

What will it change to? I don't know. Currently, I don't pay any VAT on sales in the USA, because the USA isn't EU. So will I pay VAT on sales to Germany when the UK leaves the EU? I don't know. I phoned HMRC to ask them, and they didn't know either, and thought it was all quite amusing.

But let's focus on the UK VAT, and the form I fill in for that. My understanding is that this form will no longer be available, and I'll have to submit the same information (or is it the same?) electronically (meaning, I somehow ship them a file). What's the format of that file? I don't know. It is SOAP? JSON? XML? I don't know.

And I actually know that this is going to happen. The vast majority of small businesses don't know. No-one told them, just as no-one told us about the whole VAT MOSS system in December 2015.

There's a story that there will be an excel spreadsheet add-on to do this.  That seems to be just a rumour.

There's another rumour that there will be a free HMRC-supplied software to do this.

There's a rumour that, come the end of March 2019, we will be in such a state of utter omnishambles, that no-one will know that to do, and if HMRC suddenly disable the web page where we've been giving our VAT data, a lot of businesses will no longer have a way to report their VAT. And then what?

But all anyone can see is Brexit, Brexit, Brexit. HEY!!! HMRC!!!!! How am I going to report my VAT liability to you?

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