Making Tax Digital (MTD)

Are you aware of the gov­ern­ment’s flagship scheme Making Tax Digital? In a recent survey carried out by the British Chambers of Commerce, over 50% of business owners felt that they didn’t know much about the scheme and one-third of companies are still unaware of the new le­gis­la­tion. By law, most UK busi­nesses are now required to keep and submit their tax records digitally. This change is intended to bring about sig­ni­fic­ant and be­ne­fi­cial changes for the pro­ductiv­ity of your business. So, if you have yet to make the changes or you have been delaying the update, now is the time to get into gear by following this guide to Making Tax Digital.

Making Tax Digital is a HMRC ini­ti­at­ive designed to ensure an effective and efficient tax system for taxpayers in the UK. With the in­tro­duc­tion of MTD for VAT, all VAT re­gistered busi­nesses are now part of the new scheme as of April 2019. The new digital tax system is intended to simplify the process of managing your taxes and is being in­tro­duced in stages.

When it comes to Income Tax and Corporate Tax, Making Tax Digital will not be in force until April 2020 at the earliest. This new digital system will phase out the old methods of tax sub­mis­sion by post and through the HMRC website. These fun­da­ment­al changes to the way the tax system works will make the HMRC one of the most digitally pro­gress­ive tax ad­min­is­tra­tions in the world, en­vi­sioned to create a better en­vir­on­ment for busi­nesses within the UK. Sub­sequently, if you are one of the business owners who feel that they don’t know much about Making Tax Digital, follow this step-by-step guide from the HMRC, which breaks down all the finer details.

Firstly, it means more busi­nesses will need to go digital and invest in digital skills, whether they want to or not. According to the gov­ern­ment, digital record keeping for your business will ensure an efficient real-time record keeping process. Also, the vast majority of firms want to get their tax right, but this process can be difficult and sometimes costly. Therefore, MTD will aim to reduce tax mistakes and is expected to generate over £600 million in ad­di­tion­al revenue in 2020-21.

So, for all VAT re­gistered busi­nesses with a turnover that exceeds the VAT threshold of £85,000, you will have to:

1. Store and preserve VAT records digitally
2. Send VAT returns to the HMRC via com­pat­ible digital software

The process of digital record-keeping can be a daunting procedure for busi­nesses making that initial change. In a recent survey, over half of business owners and traders admitted that they are worried about how the changes will affect their business op­er­a­tions. Therefore, to ease the stress slightly, this VAT Notice from the HMRC provides all the details con­cern­ing the records that your business must keep digitally.

The HMRC expect most customers will be able to meet the legal ob­lig­a­tions of MTD. There has been an exemption threshold set at £10,000, but you can still opt in if you wish to. There are other groups that are exempt from upgrading to the new digital scheme due various factors such as age, dis­ab­il­ity or geo­graph­ic re­mote­ness. For more in­form­a­tion or to apply for an exemption, contact the HMRC’s VAT: general enquiries.

The main date to keep in mind for VAT re­gistered busi­nesses was April 2019. However, the HMRC has announced that certain busi­nesses have a deferred Making Tax Digital for VAT start date. If you are one of the following busi­nesses, your start date will be October 2019.

• Trusts
• ‘Not for Profit’ Or­gan­isa­tions that are not set up as companies
• VAT divisions and VAT groups
• Local au­thor­it­ies
• Overseas traders

For more in­form­a­tion regarding your business status, consult this Sage article on MTD for VAT.

The deadline for sub­mit­ting your business’ VAT will not alter, the only change to the process is to complete it digitally using Making Tax Digital-com­pat­ible software. Listed below are example dates assuming quarterly filing:

• 31.03.2019 end date: Your first VAT quarter under Making Tax Digital for VAT started on 01.04.2019.
• 30.04.2019 end date: Your first VAT quarter under Making Tax Digital for VAT started on 01.05.2019.

Now that we’ve covered the back­ground and le­gis­la­tion, let’s consider why you need MTD-com­pat­ible software in order to take your business a step forward into the digital future. Although the HMRC do not offer their own software, they created a list of software companies whose products are MTD-com­pat­ible. The list is HMRC-approved and all of the products listed revealed a working prototype or released version of their digitally linked software. A digital link is one of the key terms in helping you un­der­stand the new system. Es­sen­tially, a digital link is a link which is both digital and automated, allowing data to be moved between different software or computer systems.

In order to avoid being left behind, cap­it­al­ise on this new and re­volu­tion­ary di­git­al­ised tax system to make all of your business tax op­er­a­tions more efficient in the future. To help you enhance your knowledge of the new le­gis­la­tion and potential obstacles that business may face when trying to adapt to this new system, check out this detailed article on “How to Make Tax Digital for VAT”.