Making Tax Digital – What you need to Know

The biggest upheaval to the UK tax system since the introduction of Pay-as-you-Earn is drawing nearer. Are you ready for Making Tax Digital?

Making Tax Digital (MTD) is the Government’s plan to move all taxpayers onto a fully digital tax system. The intention is to make it easier for both businesses and individuals to pay the right amount and remain on top of their tax affairs. It will also see the end of tax returns for a large proportion of the British public.

How will Making Tax Digital affect me?

You will be given a Personal Tax Account (PTA), which will be pre-populated with information HMRC already holds on you. Through this digital account you will be able to report any additional sources of income you might have.

To register for a PTA, you can visit this site. Once the system is implemented, and as long as your tax affairs are straightforward, you may not need to file a tax return again.

How does Making Tax Digital affect my business?

If your business’s turnover is higher than the VAT threshold (£85,000), you are now required to keep digital records for the purposes of VAT from 1 April 2019. This information will be reported to HMRC via MTD compatible software. The requirement to report this information will remain, even if your turnover falls below the VAT threshold.

This applies to VAT only.

Maintaining digital records and providing quarterly updates via MTD compatible software for other taxes will not be made a legal requirement prior to April 2020.

If your business falls below the VAT threshold, but you have registered for VAT voluntarily, you can opt into the Making Tax Digital system.

Will my business be exempt from Making Tax Digital?

If you are the member of a religious society or order where the use of electronic communications does not conform to your beliefs, you can apply for exemption from MTD

Similarly, if for reasons of age, disability or the remoteness of your location it is not practical for you to make an electronic return, you can apply for exemption. Other reasons of impracticality will also be considered by HMRC.

You will have a right of appeal if your application for exemption is turned down.

What software will I need to be MTD compatible?

You will need to use what is defined as ‘functional compatible software’ to comply with HMRC requirements.

This means software that connects to HMRC’s systems via an Application Programming Interface (API). It can be a single program or a set of programs, so long as those programs are ‘digitally linked’.

Your software must be able to:

  • Retain and preserve records digitally
  • Create VAT returns and send them to HMRC digitally
  • Voluntarily provide HMRC with VAT data
  • Receive information from HMRC that your business has complied.

How will the rules differ regarding digital records?

The major difference is that you will be required to submit your digital records at least once every three months.

Your business will also be required to maintain records for your VAT account.

All digital records will need to be retained for a minimum of six years.

How does the digital VAT regime differ from the current one?

If your business is above the VAT threshold or voluntary registered for VAT, you now need to submit your VAT returns using the MTD compatible software.

Your digital records will be used to populate the return and you will be able to provide supplementary information if you feel it is required. There will be no change to the statutory dates upon which a return and the payment of VAT is required.

It will be possible to submit VAT information more often than the rules require, if you so wish. This is classed as a ‘voluntary update’.

What happens now the Making Tax Digital system is up and running?

Now that the MTD system is completely rolled out, all VAT returns, barring exemptions, have to be made via the compatible software.

If your business is one of the 99 per cent already filing a VAT return online, you are no longer be allowed to use the existing Government Gateway. The only way to submit your information (from April 2019 onwards) is via MTD compatible software.

AGS is helping businesses like yours get ready and compliant with Making Tax Digital. No matter what size your company is, you will be affected. To find out how our accounting and business advice services can help you through the maze that is MTD, contact us today.

Making Tax Digital – Next Steps

Making Tax Digital (MTD) for VAT was launched in April 2019. Hundreds of thousands of VAT-registered businesses above the VAT threshold (£85,000) are now recording and reporting their affairs digitally to HM Revenue & Customs (HMRC).

The rollout of MTD for VAT will now continue with the first reporting dates beginning in July 2019 and then continuing quarterly depending on each business’s required reporting dates.

Those with more complex VAT affairs have an extension until October 2019, by which point all VAT-registered businesses will need to comply. This may include public sector bodies and some charities.

Businesses are currently benefitting from a ‘soft landing period’, which will last up to a year, to get MTD for VAT in place and be reporting their affairs accurately to HMRC without facing a penalty.

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