What Is Making Tax Digital?

What is Making Tax Digital?

HM Revenue & Customs (HMRC) want to digitise the tax system for individuals and businesses to make tax compliance more effective, efficient and to make it easier for taxpayers to get their tax right. You have probably heard about Making Tax Digital (MTD) in the press, possibly that it keeps being delayed, as HMRC originally planned a much earlier timeframe for implementation. However, it was quickly realised that the original timeframe was attempting to do too much, too soon.

Who is affected?

Most of the project is still on hold but HMRC have gone ahead with their MTD plans for VAT registered businesses with a taxable annual turnover above the VAT threshold of £85,000. MTD for these businesses commenced on 1 April 2019. However, HMRC have agreed that the following VAT registered entities can defer by 6 months to 1 October 2019; those part of a VAT group or VAT Division, those based overseas, trusts, not for profit organisations that are not set up as a company, those that submit annual returns, local authorities, public corporations, those that makes payments on account and those that use the VAT GIANT service.

What about Personal Income Tax and Corporation Tax?

The timeframe is still uncertain but HMRC have confirmed that MTD for Income Tax and Corporation Tax will not become mandatory until 2021 at the earliest. Much of the detail surrounding the future requirements is still unknown at this stage as the legislation is only in draft.

What is required?

The MTD requirements ask for UK VAT registered businesses to keep ‘digital records’ and to file their VAT returns using ‘functional compatible software’ which HMRC will not be providing free of charge. HMRC have recently published a list of MTD compatible software providers which can be found on their website.

Although the way in which VAT returns will now be submitted is different, the deadlines and frequency of VAT filing remain the same.
To clarify, you will no longer be able to submit your VAT returns using HMRC’s government gateway and you must now do so through MTD compatible software. It is possible to use more than one piece of software; one to keep records digitally and one to upload the VAT returns to HMRC, but these do have to be linked digitally. The use of spreadsheets is currently still permitted however the spreadsheet will need to the used in combination with an MTD compatible software product or need to be API enabled. I fall within the requirements for MTD from 1 April 2019 – what do I need to do?
If you already use an accounting software, your provider may have sent you their latest version already which is likely to be MTD ready, or they may have suggested you upgrade with them – please discuss this with us first.
If you are not currently using any accounting software, you will need to choose a provider.
After researching numerous solutions, we have opted to use Xero, an industry leading online cloud accounting product and have transitioned many of our in-house VAT clients onto this software. Xero offers us lower fees than clients going direct and so if you chose to source this software through us, it will minimise the cost impact of MTD on your business. We also have Xero Champions in house who are ready to support and train anyone looking to move into the cloud accounting world. Sign up for MTD. There is a requirement to sign up for MTD even though it is compulsory, and we will do this for you at the appropriate time.
For further information on Making Tax Digital and how we can assist your business please contact us.