We have been reading about Making Tax Digital (MTD) for some time now, but with delay after delay, you may be unsure about when and how it will affect your business.
What is Making Tax Digital?
MTD is part of HMRC’s plan to modernise the UK tax system, making it easier for businesses to keep on top of their financial affairs and more cost efficient for the government to collect tax. Key to this is each business’s digital tax account, through which it will be required to report, on its tax affairs every quarter.
Due to complexities around MTD (this is a major IT project) the roll out is being phased across the taxes.
When Will MTD Affect My Business?
The first tax to be brought into MTD, is VAT. From April 2019, all businesses with annual taxable turnover above the VAT threshold of £85,000 will be required to comply with MTD for VAT.
Accounting for Corporation Tax through the new MTD system, along with Income Tax and NIC for unincorporated businesses such as sole traders and partnerships, will come later – in April 2020 at the earliest.
What are the Benefits of MTD?
MTD means businesses will have:
- a real-time view of their tax liabilities
- access to all the information held by HMRC
- a more efficient means of submitting VAT returns
- fewer mistakes in their submissions
Accounting for VAT
Businesses whose taxable turnover exceeds the VAT registration threshold will need to keep their VAT records digitally. They will need to use MTD compatible software to do this, which communicates digitally with HMRC’s systems.
The information required for the VAT return will be digitally extracted from your business’ accounting software. This information will consist of the 9 boxes currently required for the VAT return, and also a set of supplementary information.
It means the end of manually entering the VAT return figures into the HMRC portal.
Smaller businesses, with a taxable turnover of less than £85,000, are not required to use the system, but can choose to do so voluntarily.
Businesses submitting monthly returns (whether directed to by HMRC or doing so voluntarily), will continue to do so. Similarly businesses submitting non-standard returns can continue to do so.
Soft Landing Period
MTD compatible software will be used to file VAT returns for periods starting on and after 1 April 2019, but there will be a “soft landing” period in the first year of MTD to allow time for all the digital links to be established.
For VAT return periods commencing between 1 April 2019 and 31 March 2020, HMRC will not enforce the requirement to have digital links between software programmes. ‘Cut and paste’ (and ‘copy and paste’) can still be used during this time. For VAT periods commencing on or after 1 April 2020, all transfers of data between software programmes must be done digitally.
It’s important to note there will be no soft landing period for the digital submission of the VAT return. This will be enforced from VAT periods commencing on 1 April 2019.
For further information on MTD, visit https://www.gov.uk/government/publications/making-tax-digital/overview-of-making-tax-digital
With the deadline of 1st April 2019 fast approaching, if you would like help or further information please contact Mark Wildi on 01689 877081 or complete our online form.
