MTD, or Making Tax Digital, means a big change for Amazon Sellers trading in the UK, and affects all aspects of the way Sellers account for VAT to the HMRC. Despite the increasing urgency for Sellers to start their transition to compliant digital systems, there is currently very little mentioned about MTD on the UK media.
When I first considered this topic for a blog, I never imagined that I’d actually be in the UK, talking to Accountants about how Amazon Sellers can prepare for this. In August, seven months before MTD becomes an official reality, my feet were on the ground in Old Blighty and I was able to get a fresh perspective from a few of our A2X Experts.
The UK’s HMRC is committed to a new, full online, digital VAT tax processing by 1st of April 2019, two days after Brexit (on 29 March, 2019). The MTD Law requires full, digital accounting that ties directly into Sellers’ accounting systems. Amazon Sellers will need to be using digital record-keeping to generate and send updates directly from their software to HMRC. Only compliant software providers will be accepted by HMRC. Currently, HMRC is testing beta pilot systems with a limited number of “provider” software companies, and Xero and Intuit are among them.
(For general information on MTD see this video Making Tax Digital HMRCgovuk.)
Awareness and Strategy
These were the watch-words from UK firms I spoke with. Although this transition to a full digital bookkeeping and accounting process may at first appear to be only simple steps, there will be many decisions for most Sellers. There are tax-technical issues, there may be concern about sifting through the software choices, updating desktop versions to online, re-evaluating their present internal tracking, perhaps even choosing an alternative accounting service, if that seems necessary. As with any other business systems changes, there will be costs and fees incurred.
Considering the potential changes Amazon Sellers need to make and the timeframe left, all our accountants recommended that businesses who are VAT registered get their skates on before the inevitable last-minute rush occurs. For many businesses with year-end March, their first digital VAT filing directly from software will happen June 30th 2019.
Donna Torres, director of SMB at Xero UK summarized Xero’s advice to Sellers: “Decide about your accounting software soon to avoid any potential complications that could arise from getting set up.”
Wendy Andrews, VAT Director at Bishop Flemming, one of the top 30 accounting firms in the UK, urges Amazon Sellers to “convert to one of the top (software) candidates sooner so the last part of digital reporting integration with HMRC is just one step.“
I reached out to Chloe Waight, Director of Lodestar Accounting, a woman-owned, small firm based in Staffordshire, who offered this:
Sellers need to think about moving on to digital software as soon as possible and not leaving it until March time to start thinking about it. There’s some very serious pressure, definitely, and time is just going to speed by. In the UK, we have other deadlines for tax such as personal tax returns. I know a lot of accountants will be focusing on other areas besides this MTD conversion. After the January deadline for personal tax, it’ll be far too late to start thinking about getting converted over – that needs to be happening now.
Registering for VAT payments under MTD
At present, Amazon Sellers based in the UK must be registered for UK VAT if annual turnover is £85,000 or above. (Once a Seller passes the threshold, they have 30 days to register.)
After April 2019, all Amazon sellers with sales over the threshold that trade in the UK, regardless of their country location, need to register for digital VAT reporting.
HMRC’s Rollover Year
If a Seller’s turnover is currently above or rises above the threshold they must comply with HMRC’s MTD.
The UK system of a rollover year or “12 month look-back” makes timely VAT registration imperative. Sellers who pass the Annual Threshold have their VAT automatically backdated to the beginning of that current month. This effectively means that Sellers must be able to monitor their Gross Sales on a real time basis.
With a few clicks, A2X Users can record their sales to Xero or QuickBooks Online. This makes regular monitoring of their gross sales in relation to the VAT threshold really easy. The process to submit the VAT return to the HMRC can be simplified by mapping VAT codes in A2X.
(For more information on how to configure VAT in A2X, see our A2X Help center articles on VAT.)
How ready are you as an Amazon Seller in the UK marketplace?
Here’s our checklist for Sellers with a UK Turnover of £85,000 plus:
- Track your gross sales rollover threshold
- VAT Registered
- User Xero or QuickBooks Online
- Use A2X to crunch the Amazon Sales and Fees
- Have a MTD-knowledgeable Accountant
- Understand what VAT rates apply to Amazon transactions and product types
- Use A2X to help monitor Product Profitability
- Have your HMRC unique digital account set up
- Ask your accountant for advice
Disclaimer: These are recommendations from A2X based on research. Seek advice from your accountant to ensure full compliance with the new HMRC laws.
Sellers who are currently VAT-registered, or anticipate they might pass that threshold, should talk with their accountant about a Timeline for their digital VAT-compliance.
Donna Torres strongly suggests, “An accountant can advise you on how and when to digitise your paper-based system. They’ll also identify the best software for your needs and walk you through how to take advantage of going digital.”
Chloe Waight added,
It needs to be looked at now. Really, Amazon Sellers need to speak to their accountant and find out what they are offering and, if they can’t advise them, then they need to be looking for someone who can.
It’s going to be a time where businesses need to be working really closely with their accountants to make sure that they’re compliant for this massive change to the VAT system.
Real time accounting with Online Software
As an Amazon seller, moving your venture into real time has the potential to produce increased business efficiency. Through more accurate and up-to-date tracking, solid metrics can guide stronger, more agile business decisions.
Chloe Waight said:
I’m a big believer in real time – to be able to monitor the profitability of the business and make decisions on the future of the business. I think that’s really important for Amazon Sellers because it’s such such a fast moving environment. They’ve got to make decisions about whether they need to reorder certain lines of inventory quite quickly, and to see whether that item is profitable or not.
For Sellers who are looking at moving from paper or spreadsheet-based to online solutions, this is a huge leap in how they operate and there is a lot to learn, digest, and integrate before April 1st, 2019.
Chloe Waight offers this encouragement:
Find a competent firm to help. It’s daunting to trust a new kind of accounting and a new accounting firm. The personality of accounting firms makes a difference. It’s great to have a personal meeting to see a demo of software and other services. More regular services, not just end of year, can actually save business owners money and position them for strategic growth. We’re no longer just number crunchers. Accountant firms are offering more services and building more client relationships with frequent, ongoing business advice.
After the interviewing was over, I came away with the strong impression that any Amazon Seller would benefit from the kind of advice, guidance, and savvy that had been shared with me in these interviews.
As I left the ground for sunny Florida, I considered the far-reaching implications of MTD. HMRC is modelling the new system as it goes, and the accounting profession will have their hands full advising and helping businesses navigate the new system.
The UK Amazon marketplace is second in size to the US marketplace and, for the Seller who has a gross turnover near or just below the current UK threshold of £85,000, watching the current monthly metrics will be crucial regarding timely VAT registration. Across-the-board digital reporting will mean all owners can gain real-time awareness of their finances.
The digital accounting environment also represents an opportunity for a paradigm shift, away from year-end check-ins and towards an ongoing financial dialog. Coming back to the States, I also understood that the owner and accountant dynamic plays a key role in this transition to a digital age of the UK retail sector. I hope that, wherever you are at in the MTD CheckList, reading this has made it easier to see and face what needs to be done to get compliant. I wish all those facing the MTD transition the Best of British!