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Making Tax Digital

Making Tax Digital (MTD) is a HM Revenue and Customs (HMRC) initiative to digitalise the UK tax system. Businesses and landlords will be required to use software to maintain their records and to update HMRC quarterly, starting with VAT.

VAT turnover threshold currently £85,000
Quarterly VAT updates from 1 April 2019
Support and advice to achieve compliance

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Service Details

Making Tax Digital (MTD) is a HM Revenue and Customs (HMRC) initiative to digitalise the UK tax system. Businesses and landlords will be required to use software to maintain their records and to update HMRC quarterly, which started with VAT for business over the VAT threshold.

The next stage under MTD, is businesses below the VAT threshold will also be required to keep their records digitally and provide HMRC with quarterly VAT updates from the beginning of their first VAT quarter starting on or after 1 April 2022. From April 2023, MTD for Income Tax Self-Assessment (ITSA) will be introduced for unincorporated businesses and landlords with income over £10,000.

Quarterly updates will have to be submitted to HMRC from software via an Application Programme Interface (API). It is therefore important for such businesses to make sure that they have an accounting package which can do this and, if not, ensure they do in good time for their first quarterly update under MTD.

HMRC will be providing an online tool to help businesses identify which software packages will meet their MTD needs but until that is available it will be very difficult for businesses and the agents advising them to make an informed decision.

The VAT regulations will specify the information a business needs to maintain in digital format and will include:

The business name, principle place of business and VAT registration number, along with information about VAT accounting schemes used;
The VAT account that each VAT registered business must keep, by law – this is the link between primary records and the VAT return; and
Information about supplies made and received.

Impact on businesses

Quarterly reporting for VAT is already mandatory for most businesses. Although 99% of VAT returns are filed online, only around 12% are currently filed via software. The majority of returns are therefore (presumably) manually entered onto the government gateway page and submitted to HMRC- requiring manual input and intervention. Under MTD, businesses will not be able to keep manual records.

Currently, spreadsheets are commonly used – not only to maintain records, but also to convert the information from accounting software into the VAT return figures. MTD requires spreadsheets to interact directly with software. Overcoming these issues may be challenging for businesses.

Summary

By April 2019, businesses will need to:

Understand the tax-technical changes to the UK/EU VAT rules; and

Ensure that their accounting systems and processes can deal with such changes correctly.

These changes will need to be implemented via the new reporting requirements of MTD. Early planning and preparation will be the key to a successful transition.

By April 2022 this will include all VAT registered businesses regardless of size.

Self-employed businesses and landlords with annual business or property income above £10,000 will need to follow the rules for MTD for Income Tax from their next accounting period starting on or after 6 April 2023.

How can we help?

We recommend that businesses and landlords, especially those using paper records or spreadsheets, consider some of the cloud accounting packages available such as Xero or QuickBooks.  These will be good solutions for dealing with MTD and bring other benefits to the business. We are happy to run through the options, and to arrange an appointment please contact your local office and a member of the specialist cloud accountancy team will be delighted to give you more details on the options available and work out the best solution for you and your business.