Making Tax Digital

Making Tax Digital – Key points

Making Tax Digital (MTD) is a key part of the government’s plans to overhaul the UK tax system.  It is the biggest shake-up of a generation.

The initiative is designed to make sure the UK tax system is effective, efficient and easier for taxpayers to stay on top of their affairs and get their tax right.

Making Tax Digital for business (MTDfb) commences on 1 April 2019 with MTD for VAT.  From this date, VAT registered businesses above the threshold of £85,000 per annum will have to keep digital records and submit VAT returns using compatible software. 

The Government will not widen the scope of MTD beyond VAT before the system has been shown to work well so other components of MTD such as income tax and corporation tax have been placed on hold until April 2020 at the earliest.  The timing of this implementation coincides with Brexit and currently time and resources are being spent dealing with the fallout of Brexit.  As such, MTD is inevitably taking second place and at present, it’s unclear whether the April 2020 deadline is feasible.

Unfortunately, HM Revenue and Customs have not always been forthcoming with clarity on some aspects of the regime so there has understandably been some confusion.  In this week’s blog, we look at some of the key points.

  1. MTD is mandatory for anybody with a turnover above the VAT threshold of £85,000

It is not possible to opt out of MTD.  If you or your business meets the criteria set out within the legislation, you will need to be fully compliant at the appropriate implementation date.

  1. VAT registered businesses with turnover below the VAT threshold currently do not have to comply with MTD

HM Revenue and Customs have confirmed that businesses with a turnover below the VAT threshold do not have to comply with MTD and continue to submit VAT returns through the online portal as normal.

It is possible for these businesses to voluntarily sign up to MTD by informing HM Revenue and Customs in writing.  This may be beneficial for businesses who are seeing increasing turnover as once turnover reaches £85,000, they will be eligible and need to report under MTD.

From April 2020, VAT registered businesses with a turnover below the VAT threshold will need to maintain records in digital form and submit VAT returns through appropriate third-party software.

  1. You need to use specific software for maintaining your records

HM Revenue and Customs have announced that it has seen demonstrations of various MTD software and tested online accounting products within the HMRC environment.  It has produced a list of tested software and it’s likely that additional providers will be added to this list at a later date. It’s important to ensure that the software which you are using is compliant so that you can submit VAT returns once the system goes live.

  1. You can still use spreadsheets

The use of spreadsheets will be permitted although they will need to be combined with third-party commercial software using API’s (application programme interfaces) to ensure a seamless flow of date from the business to HM Revenue and Customs and vice versa.

  1. HM Revenue and Customs will not have access to the financial data of a business

The information that you will be required to submit to HM Revenue and Customs is the same information that you submit now. 

Part of the MTD regime is to ensure that there is a trail from digital record to information submitted to HM Revenue and Customs.  The link between software and HM Revenue and Customs will provide the information which is currently provided when submitting a VAT return.

  1. You don’t need to store all invoices and receipts digitally

There will be no requirement to store invoices and receipts digitally.  Businesses can continue to keep documents in paper form, although transactional data, including the time and value of each supply and applicable VAT rate, will need to be stored digitally.  Retailers with the VAT retail schemes will be able to record gross daily takings rather than each individual transaction.

  1. VAT schemes

Businesses will still be able to uses the flat rate scheme under MTD meaning digital records of purchase invoices will not be required (unless they relate to capital items which cost more than £2,000 including VAT.

Businesses using the annual accounting scheme will continue to send one annual VAT return rather than quarterly reports under MTD.

MTD is the first step in the vision of HM Revenue and Customs to make the UK tax system more effective, efficient and easier for tax payers.  It’s clear that the implementation of MTD is a huge change for all businesses and with less than a year to April 2019, its vital that businesses understand their responsibilities and are ready to adopt the changes once they are implemented.

Please feel free to contact us on 0161 952 4244 to discuss matters in more detail.