Making Tax Digital (MTD) is the government’s ambitious program to implement fundamental changes to the way the tax system works by becoming one of the most digitally advanced tax administrations in the world. These changes will affect both individuals and businesses and will be implemented gradually over a period of time.
The first stage in the MTD process will be VAT returns – VAT registered businesses with a taxable turnover above the VAT threshold (£85,000) will be mandated to keep digital VAT records and send returns using Making Tax Digital (MTD) compatible software from April 2019. The deadlines for sending VAT returns and making payments are not changing.
What is changing?
From April 2019, the HMRC online portal will no longer be available to file VAT returns. Instead you will need to use MTD compatible software to prepare and lodge VAT returns. MTD compatible software simply means that it can integrate with HMRC systems to send VAT returns to HMRC.
You do not need to keep any additional business records because of MTD. However, business records must be kept digitally to be compliant. The information contained within the MTD VAT return will be generated by pulling information directly from the digital records.
How do I know if my software is MTD compliant?
More than 40 software suppliers have been confirmed as MTD compatible. These include the leading cloud software suppliers such as Sage Cloud, Xero, Kashflow and Quickbooks. Therefore if you are already using a cloud based accounting package on HMRC’s list, then you will be ready for MTD.
If you are using an old version of Sage or are using manual records or spreadsheets you will have to move to compliant software. Although spreadsheets can still be used, you will need to purchase yet to be developed Application Programming Interface (API) software that will electronically transfer the data in the spreadsheet direct to HMRC.
Moving to a cloud based accounting solution which has been MTD approved by HMRC will be the simplest way to ensure you will be MTD compliant. If you need help in finding a solution then we can provide assistance in finding the right software for you or even carry out the digital recording of transactions using Dafferns Resource for all your bookkeeping needs.
When will other taxes become digital?
Initially quarterly reporting for income tax and corporation tax was due to commence from 1 April 2018, however pressures from Brexit have caused HMRC to delay this further roll out of MTD. There is no date set for this next phase but it will not be before April 2020 at the earliest.
If you would like more information on Making Tax Digital
Please contact our Senior Tax Manager Karen Keeling.