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Making Tax Digital for VAT – can I just record the daily gross takings?

Making Tax Digital for VAT – can I just record the daily gross takings?

For many businesses, Making Tax Digital changes how transactions must be recorded in their accounting records. Not only does it require the relevant information to be captured digitally, the rules specify precisely what information needs to be recorded in relation to each supply. This may require a change in the method or nature (or both) of these businesses’ record-keeping.


At Cloud Accounting LLP, we have seen numerous queries around how to keep records which are compliant with MTD, but a question which comes up repeatedly is how MTD affects businesses who supply final consumers, but who do not consider themselves ‘retailers’. Examples could include restaurants and cafes, car wash businesses, and even a different revenue stream within a non-retail business such as a bar or a gift shop within a B&B or hotel. I will refer to them as ‘cash businesses’ in the remainder of this article.

Summary

Retailers and other cash businesses (those who sell to an end consumer) do not need to capture the details of each individual supply they make in their digital records, but they do need to record the total of all retail supplies for each day of trading – it cannot be done on a less frequent (eg weekly) basis.

This can be done on a simple Monday – Friday spreadsheet. In certain circumstances it may be necessary to split gross takings between those supplies that are zero rated and standard rated.

Read on if you want to understand the detailed legislation behind it:


Record keeping requirements

Let’s first look at the basic requirements and consider why cash businesses may find these difficult to comply with.
The Value Added Tax (Amendment) Regulations (2018 No. 261) state that the following information must be captured within the digital records:
(3) Subject to paragraph (4) the information specified for the purposes of paragraph (1) for each accounting period is—
(a) subject to sub-paragraph (c), for each supply made within the period—
(i) the time of supply,
(ii) the value of the supply, and
(a) subject to sub-paragraph (c), for each supply made within the period—
(i) the time of supply,
(ii) the value of the supply, and
(iii) the rate of VAT charged;
Paragraph (c) provides some relaxation from these rules:
(c) where more than one supply is recorded on a tax invoice and those supplies are either—
(i) supplies made which are required to be accounted for in respect of the same prescribed accounting period and are subject to the same rate of VAT, or they may be treated as a single supply for the purposes of … sub-paragraph (a)…
These rules are repeated in paragraph 4.3.2 of the VAT Notice (700/22).


Most readers will be aware that the word ‘supply’ in VAT has a particular meaning, and is much more granular than the amounts recorded on an invoice or statement, or amounts paid or received. So, businesses who make lots of individual supplies, particularly to end customers for whom they are not required to supply a VAT invoice, would have difficulties complying with the above record-keeping requirements of MTD.


Relaxation for retailers

Fortunately, all is not lost. Provision has been made in the Regulations to relax the above requirements in particular circumstances:
(4) The information specified in paragraph (3) may be varied by direction of the Commissioners to make provision about—

(c) the operation of retail schemes under Part 9 of these Regulations (supplies by
retailers);
Paragraph 4.5 of the VAT Notice provides that relaxation in a paragraph which has the force of law:
In addition to the records listed in paragraph 4.3 above, if you account for VAT using a retail scheme you must keep a digital record of your Daily Gross Takings (DGT). You are not required to keep a separate record of the supplies that make up your DGT within functional compatible software.
For more information on retail schemes and Daily Gross Takings see VAT notice 727: retail schemes.


So, retailers do not need to capture the details of each individual supply they make in their digital records, but they do need to record the total of all retail supplies for each day of trading – it cannot be done on a less frequent (eg weekly) basis.
But the question remains – does this relaxation include ‘non-traditional’ retailers ie the cash businesses described above?


What is a retailer?

There is no definition of ‘retail’ or ‘retailer’ in the VAT Act or the VAT Regulations. HMRC provide a definition in the retail scheme VAT Notice (727) as follows:
Retail is the selling of goods or services to consumers [and the retail schemes are aimed at retailers that cannot account for VAT using normal accounting].


Accounting for VAT in the normal way does not require businesses to issue a tax invoice to unregistered customers, but it does require them to identify, for each sale, the tax exclusive value and the VAT, and to be able to produce periodic totals of those amounts. Many cash businesses will not be able to do this, because of the level of information they retain in relation to each sale they make – even if they use electronic tills.


Therefore, in accordance with the definition above, and as HMRC has also kindly confirmed to us, cash businesses are considered to be retailers for these purposes. Cash businesses are likely to be covered by the point of sale scheme. This applies where the business is identifying the VAT rate when they make the sale and, if all sales are standard rated, they simply apply the VAT fraction to calculate the VAT due. As there is no retail scheme calculation per se to undertake then these businesses often do not realise that they are using a retail scheme.


So, these cash businesses can therefore benefit from the relaxation set out above in relation to their retail sales ie they can simply record their Daily Gross Takings in their digital records. They do not need to record each individual sale, nor is a digital link required between their tills and their accounting records – the input of the Daily Gross Takings is the start of the digital journey.


Any non-retail sales will need to be recorded in the digital records on a supply-by-supply basis as they do not benefit from this relaxation.

Xero VS QuickBooks Online

Thinking of a cloud accounting system for your business finances but not sure which one — here’s the ultimate review!

With Making Tax Digital (MTD) approaching and with HMRC insisting that small business, many of whom currently use spreadsheets, to move to cloud accounting systems we thought we’d compare the 2 most popular…

Xero vs Quickbooks Online

Developed in 2004, QuickBooks Online beat Xero to the accounting scene by two years. With advanced accounting features, beautiful invoicing, 400+ integrations, it’s easy to see why the software is so renowned.

Xero is a robust accounting solution that rivals QuickBooks in terms of capability and popularity. It’s been around since 2006 and offers fully featured mobile apps, amazing customer service, access for unlimited users, and an impressive feature selection.

Summary Table

Accounting

Winner: Tie

Both Xero and QuickBooks Online offer strong accounting. Each uses double-entry accounting and supports cash-basis and accrual accounting. In addition, each software has strong accounting features including bank reconciliation, fixed asset management, a chart of accounts, and plenty of accounting reports.

Features

Winner: Xero

QuickBooks Online and Xero offer very similar features. In some areas, like invoicing, project management, QuickBooks Online far exceeds Xero (especially since Xero has no project management or lending). In other places, like contact management, Xero provides the better feature. So how do we decide who is better?

In the end, it all comes down to accessibility. QuickBooks Online offers many great features — project management, budgeting, inventory, etc. — but there’s a catch. These features are limited to the more expensive plans. Xero doesn’t limit features by plan, making it a more robust and realistic solution for many users, which is why we gave it the win for this section.

Pricing

Winner: Tie

For some businesses, QuickBooks Online is a much more affordable option. Xero’s smallest plan only gives customers 5 invoices and 20 transactions, which renders this plan useless to many small business owners.

For medium to large businesses, Xero is the better choice. Xero offers payroll at no additional cost and supports unlimited users for every plan. QuickBooks Online doesn’t even come close in this regard.

This category is a draw. The real winner will depend entirely on your business size and needs.

Hardware & Software Requirements

Winner: Xero

As cloud-based software, QuickBooks Online works with nearly any device so long as you have internet access and are using one of the following browsers:

  • Google Chrome
  • Mozilla Firefox
  • Internet Explorer 10+
  • Safari 6.1+

Xero is also cloud-based; it’s compatible with nearly any internet-enabled device so long as you are using one of these browsers:

  • Google Chrome
  • Internet Explorer 11
  • Microsoft Edge
  • Mozilla Firefox
  • Safari 8+

Both QuickBooks Online and Xero offer mobile apps for Android and iPhone.

The only reason Xero takes the cake in this category is that you can use Xero with Linux, a capability QuickBooks Online currently doesn’t offer.

Users & Permissions

Winner: Xero

Xero offers unlimited users for all five of its pricing plans. The company also provides some of the strongest user permissions in cloud accounting. QuickBooks Online only supports one, three, or five users depending on your pricing plan (you can add up to twenty-five users total, but the cost adds up fast).

In the end, how can you beat unlimited users?

Ease Of Use

Winner: Tie

QuickBooks Online used to be the clear winner here, but the company has recently made changes to the UI, leaving the software difficult to navigate (read more about this in our complete QuickBooks Online review).

That said, Xero is only easy to use once you get to know the software. There is a steep learning curve and setup can be quite intensive. Xero offers plenty of support tools to get over this learning curve (which is more than QuickBooks Online can say). Because of QuickBooks Online’s recent downgrade and Xero’s steep learning curve, the programs are tied in this category.

If you end up choosing Xero, check out our free How To Set Up Your Xero Account guide; it will help you get started and optimize your Xero account.

Mobile Apps

Winner: QuickBooks Online

While there are a few complaints about QuickBooks Online’s mobile apps, most users find the apps incredibly helpful and easy to use. The apps receive 4.2/5 stars on iTunes and 4.3/5 stars on Google Play Store.

One of the biggest complaints about Xero is that their mobile apps are lacking key features and are ridden with bugs and crashes. It’s easy to see the winner in this section.

Customer Service & Support

Winner: Xero

Xero has the best customer service by far. In my experience, Xero representatives are well-informed and quick to respond to customers. The company also offers ample online resources, including a comprehensive help center, an in-software help button, a community forum, and lots of business and accounting guides.

While QuickBooks Online has been attempting to remedy their issues with poor customer support, the company still has a long way to go. Response times are slow and representatives are often uninformed. On the plus side, QuickBooks Online does provide a contact phone number (Xero does not — a fact quite a few users have complained about), but the phone support is not enough to beat out Xero.

Negative Reviews & Complaints

Winner: QuickBooks Online

This is one category QuickBooks Online should not want to win, and yet here they are. QuickBooks Online has received many user complaints regarding poor customer service, bugs, limited mobile apps, and even unauthorized charges.

Xero, on the other hand, has received very few customer complaints (although, this could be because it has half as many users as QuickBooks Online and hasn’t been around as long). The software is well-loved by most of its users and receives higher ratings across popular customer reviews sites.

Positive Reviews & Testimonials

Winner: Xero

While QuickBooks Online gets more positive reviews in terms of numbers, Xero receives a higher percentage of positive to negative reviews, which is why we’ve given it the victory in this section. Xero has earned 4.4/5 stars on GetApp and 4.3/5 stars on G2crowd (on this same site, QuickBooks Online only receives 3.1/5 stars).

Integrations

Winner: Xero

Xero has over 500 integrations, while QuickBooks Online comes in with over 400 integrations. Xero outnumbers QuickBooks Online here, but let’s be honest: once a company hits the couple hundred integrations mark, what more could you ask for? Both of these companies are the top accounting software companies when it comes to integrations, so you can’t go wrong with either choice.

Security

Winner: Xero

Ordinarily, this section results in a tie, but Xero has set itself apart in terms of security.

Both QuickBooks Online and Xero use data encryption, redundancy, and physical security measures at their prospective data centers. However, Xero boasts an unheard-of 99.97% uptime and has one of the strongest security reputations in the cloud accounting world. Of course, QuickBooks has one of the other strongest reputations in the accounting world, so, again, you really can’t go wrong with either option in this regard.

And The Overall Winner Is…

QuickBooks Online put up a very good fight, but in the end, Xero edges out the competition in a few key areas. Xero offers accessible features, better customer service, and more positive reviews. In this comparison, the people truly have spoken, and Xero is the winner.

Xero the Best Accounting Software For Larger Businesses. If you are looking for strong accounting capabilities, Xero won’t let you down. It’s important to note that there is a steep learning curve with this software, so if you’re not up for the challenge, QuickBooks Online might be a better choice.

Although QuickBooks Online didn’t win this one, it is particularly ideal for small businesses. If your company relies on invoicing, QuickBooks Online’s invoicing capabilities are far beyond anything Xero can offer. And if you need a project management feature, QuickBooks Online is also the way to go. Who knows?

If you want a full guide in how to set Xero up- go to our of our new chatbot 🤖, Claire

Making Tax Digital – January 2018 update

Making Tax Digital – January 2018 update

HMRC released draft guidance for MTD on VAT in December 2018. VAT MTD Guidance Cloud Accounting (NI) attended an HMRC presentation last month (jointly facilitated by the ICAEW and the VAT Practitioners Group). HMRC have a very clear idea about how this will work in practice but judging from the questions asked that has so far […]

MTD – Getting Started

JUST £175 plus VAT

You may not want to appoint an accountant to do your accounts but maybe you need someone to help you get up and running on FreeAgent; checking that you set everything up correctly as well as ensuring that you know what to do and how to do it going forward.

This is especially useful if you’ve been trading for some time and need to set up your opening position in FreeAgent and your VAT accounting.

That’s why we come up with our Getting Started service.

Our Getting Started service is great for clients who are new to FreeAgent or new to business as well as an ideal solution for those starting out in the contracting or freelancing world.

It’s a cost effective solution for those who are willing to listen & learn so that they can develop the capabilities needed to do their own bookkeeping and keep their accounts going forward.

We provide you with hand holding up front to get you on track with the confidence that you need to know that you are doing the right thing.

To read more about what’s included in this service CLICK HERE.

All this for just £175 plus VAT

Interested?

Give us a call 0207 971 1002 or email us at admin@CloudAccountingni.com

 

Making Tax Digital

Making Tax Digital

Under its Making Tax Digital initiative, the Government will require taxpayers with a turnover exceeding £10,000 to maintain digital accounts. The UK tax agency should adopt a light-touch approach to penalizing taxpayers who fail to meet the new digital reporting requirements that will be introduced from 2019, tax experts have said. The Chartered Institute of […]

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