Making Tax Digital (MTD) is a government initiative to improve and streamline the way HMRC collects tax. It comes into force on 1 April 2019 and means, for affected businesses, a change to the way they prepare and file VAT returns. Specifically:
- HMRC’s online VAT portal will close from April.
- VAT returns must instead be submitted to HMRC through MTD software.
- Businesses must digitally record their VAT transactions and returns using MTD software.
Who is affected by MTD?
VAT-registered businesses above a threshold of £85k will have to keep digital records and submit their VAT returns using MTD-compatible software. Making Tax Digital for business (MTDfb) begins on 1 April 2019 with MTD for VAT. Businesses below the threshold will continue to use the HMRC online portal and then follow the digital requirements from April 2020 onwards.
MTD for corporation tax has yet to be confirmed but it will not become mandatory before April 2020.
MTD for anyone that completes self-assessment tax returns – self-employed, partnerships, trusts and landlords – have yet to have a date for mandatory income digital tax reporting set.
What do you need to do?
To be compliant with MTD, you (or your accountant) needs to maintain your taxable records digitally and must submit your VAT returns through MTD-compatible software – such as Xero and Quickbooks.
Who is affected, at a glance:
Businesses with a turnover above the VAT threshold of £85,000
- MTD-compliant software or apps will have to be used to keep a digital record of VAT transactions
- MTD-compliant software or apps will have to be used to submit VAT returns
- Submitting VAT returns using HMRC’s own VAT online services (currently accessed by logging on to HMRC’s site) will no longer be possible
Your business will be in Phase 1 of Making Tax Digital and you will have to be compliant by the 1st April 2019.
Businesses with a turnover below the VAT threshold of £85,000
- MTD-compliant software or apps will have to be used to keep a digital record of VAT transactions
- MTD-compliant software or apps will have to be used to submit VAT returns
- Submitting VAT returns using HMRC’s own VAT online services (currently accessed by logging on to HMRC’s site) will no longer be possible
Your business will be in Phase 2 of Making Tax Digital and you will not have to be compliant until April 2020 at the earliest.
Sole-traders, partnerships, landlords and trading companies. In addition the inclusion of corporation tax and self-assessment into Making Tax Tax Digital.
- MTD-compliant software or apps will have to be used to keep a digital record of financial transactions
- MTD-compliant software or apps will have to be used to submit quarterly updates to HMRC for both income and corporation tax purposes
Phase 3 of Making Tax Digital is unlikely to come into force until April 2020 at the earliest.
How do you know if your software is compliant?
HMRC publishes a list of compliant software products. We’re proud to be on the list. It’s just one part of our commitment to support small businesses and their advisors through the transition and beyond.
What if your software isn’t on the list?
- If you’re using software that is not MTD for VAT compliant, you have two options:
- Move to MTD for VAT-compliant software. Complete the form to the right if you need help with this.
- If you are still wedded to spreadsheets, there is an alternative which involves using bridging software, with an API link to HMRC, to make MTD compliant submissions. Software such as Clearbooks, TaxCalc, Wolters Kluwer and DataDear are emerging as options.
What do I need to do next??
1. Register for an online Government Gateway account. You can create one here: www.gateway.gov.uk and will need to allow time for completing the application as your activation code will be sent by post and can take 30 days to arrive.
2. Find out when you you’ll need to make your first MTD submission (see the table above)
3. Decide if you need to appoint an accountant, or bookkeeper,
4. Decide how you will digitally record transactions?
5. Learn the process and ensure you know what you need to do when you are required to do so.
To find out more about this article please contact us.