Making Tax Digital (MTD) is an initiative introduced by the UK government to call for the 'end of the tax return' to establish a 'transformed tax system' by 2020, making it the most digital advanced system in the world. The transformation should simplify the way tax returns are submitted by taxpayers, including company directors, making it easily accessible and more efficient than the existing process.
The new procedure has been designed to make calculating tax easier, helping you keep on top of your finances. From April 2019, Making Tax Digital will banish the traditional tax return for millions, switching to a modern way of tax administration.
The initiative will come into force imminently after the UK will exit the European Union on 29 March 2019, as a result of the Brexit vote.
Does MTD apply to my business?
Making Tax Digital for VAT will come into force from 1 April 2019 for around one million businesses who are VAT registered with a taxable turnover above £85,000. From April 2019, these businesses will be required to retain digital VAT records and use Making Tax Digital compatible software to submit VAT returns online. The MTD pilot opened in April 2018, allowing businesses to voluntarily test the service to prepare for the change sooner.
Businesses with a taxable turnover under £85,000 are not required to comply with Making Tax Digital, but they can sign up voluntarily. By using MTD compatible software, you will be able to streamline the financial processes of your business.
What if my turnover drops under £85,000?
If taxable turnover drops under £85,000 at any point on or after 1 April 2019, you will still be required to keep digital records and send your VAT returns to HMRC using software compatible to Making Tax Digital.
If you de-register from VAT, you will be exempt from Making Tax Digital.
MTD obligations for a small majority of businesses with complex financial situations have been deferred by 6 months. MTD will apply to around 3.5 per cent of mandated businesses from 1 October 2018. The following fall into the category, as stated by HMRC:
- ‘Not for profit’ organisations not set up as a company
- VAT divisions
- VAT groups
- Public sector entities which are required to provide additional information on VAT returns, such as, government departments and NHS Trusts
- Local authorities
- Public corporations
- Overseas based traders
- Those required to make payments on accounts
- Annual accounting scheme users
What is MTD compatible software?
In order to comply with MTD, you will be required to use software compatible with Making Tax Digital. If you are already using online accounting software, query if the platform will be adjusted fulfil the following Making Tax Digital requirements:
- Submit VAT returns
- Send income tax updates throughout the year
If you are an agent, such as an accountant, you will need software which will allow you to submit VAT returns and tax updates on behalf of your client to HMRC.
What information does HMRC require?
VAT records should be digitally recorded in order to be sent to HMRC. Your digital documents should include the following for each supply:
- Time of supply (tax point)
- Value of the supply (net excluding VAT)
- VAT rate charged
The records should include your business name, business address, VAT registration number and details of VAT schemes used, if applicable.
Is MTD compatible with spreadsheets?
A spreadsheet can be used to arrive at the final calculation which should be sent to HMRC. This data should not be manually typed out again into a software platform. Bridging software can be used to translate this data into an acceptable format to be sent to HMRC.
By keeping digital records on MTD compatible software, the data can be sent directly to HMRC from the original platform using one digital link. A list of acceptable MTD software suppliers can be found here.
Handpicked Accountants can put you in touch with a qualified and reliable accountant to advise you on Making Tax Digital, your obligations and recommended accountancy software. We have long-standing relationships with accountants across the country who are experienced and specialists in their field. Call a member of our team to find a professional accountant near you.