Making Tax Digital (MTD)

Making Tax Digital (MTD) is part of the government’s plan to make it easier for businesses to stay on top of their day-to-day accounts. HMRC wants to be one of the most digitally advanced tax administrations in the world – improving efficiency, effectiveness and ease of compliance, which means no paper and more regular reporting.

VAT is the first milestone for MTD with the requirement to keep digital accounting records and file VAT returns using MTD compliant software by April 2019

Link to full details on HMRC website

Making Tax Digital

From 1 April 2019, Making Tax Digital for VAT (MTDfV) is mandatory for all VAT registered businesses with a taxable turnover over the VAT registration threshold (currently £85,000). You are required to keep your records digitally and file your VAT returns via compatible software.

The types of information you are required to keep digitally includes the tax point, value of supplies and purchases, rate of VAT, business name and address, VAT number and your VAT scheme. 

It does not change the information you normally send to HMRC or when you send it.

The first VAT return affected will be periods starting from 1 April 2019.

For example, if your VAT quarters are March, June, September and December, your first VAT return affected will be from 1 April 2019 to 30 June 2019.

What does this mean for me?

Everyone needs to review their accounting systems and ensure they are compliant with MTDfV.

You must use software that draws information from your digital records and links directly to HMRC systems to send and receive information.

HMRC cannot recommend a software provider and the onus is on the business to bear the costs for this change. HMRC have, however, been working with a number of commercial software developers to make sure their software packages will be compliant with their application programming interfaces (APIs), and have been running a number of pilot schemes to test this.

Many businesses will be using compliant software without even realising, if you are using a ‘cloud based’ software such as Xero, Intuit QuickBooks, Freeagent or Sage.  No doubt your software provider has already been in touch to advise you if you need to upgrade or move from a ‘desktop’ to ‘cloud’ based version.

HMRC have issued a list of compatible software which can be found at: -

https://www.gov.uk/guidance/software-for-sending-income-tax-updates

Can I still use spread sheets?

Yes, you can keep a spread sheet as your digital records as long as you can send your VAT return to HMRC digitally without having to manually type information from one system to another. You will need ‘bridging software’ which will take the relevant information from your spread sheets and send it to HMRC.

Our view is that with further changes that are due to take place with MTD, including quarterly reporting, that changing to a financial software package now is the best option.

Do all my records need to be on one system?

No, as long as all the elements link data digitally and no manual transfers of data are necessary.

How does this affect me if an agent files my VAT returns?

The agent will need to have access to your compatible accounting software to file the VAT return digitally with HMRC on your behalf.

What if I am below the VAT threshold but have registered for VAT voluntarily?

If your taxable turnover is below the threshold and you are VAT registered, you can still voluntary join MTDfV.

What if I am currently exempt from filing my VAT returns online?

Any businesses currently exempt from online filing will still continue to be so.

Are any types of businesses delayed?

HMRC are delaying MTDfV for more complex business for six months until 1 October 2019. This means trusts, unincorporated charities, public corporations, overseas businesses who are UK registered and have no establishment in the UK, companies who use group registrations, make payments on account or use the annual accounting scheme are all deferred.

Plans for the future

HMRC plans to become the most digitally advanced tax administration in the world. With this in mind, MTDfV is just the start.

Making Tax Digital for income tax and corporation tax will be introduced no earlier than April 2020.

Should you need any help or assistance, please do not hesitate to call Harbour Key’s offices on 01452 713227.