Introduced on 1 April 2019 for all VAT registered businesses, Making Tax Digital (MTD) was probably the single biggest tax compliance change in the past 20 years. Below we have summarised what Making Tax Digital means for VAT registered businesses and some frequently asked questions. Please contact us if you require guidance or support with complying with the Making Tax Digital requirements.
What does Making Tax Digital mean for my business?
Essentially, from 1 April 2019 VAT registered businesses are no longer able to send their VAT information to HMRC via HMRC’s online portal.
Under the new rules, all VAT registered businesses (sole traders, companies, partnerships and LLPs) are required to submit their VAT return digitally using compliant software. Businesses with a turnover above the VAT threshold (currently £85,000) have to:
- Maintain digital records – You must maintain your records digitally. This means that transactional data (such as the time/value of each supply and the applicable VAT rate) must be stored digitally, on software or spreadsheets.
- Submit VAT information – HMRC’s online portal is now closed for VAT registered businesses and you are no longer be able to submit VAT returns this way. Instead, all submissions must be made digitally via HMRC’s Making Tax Digital API. Please note, the online portal will remain available for voluntarily VAT registered businesses with taxable turnover under £85,000 while their turnover remains under this threshold.
- Have digital links to records – VAT returns must be linked to digital records. HMRC has announced a 12 months soft landing period, however this is very likely to be enforced in the future and we recommend preparing for this now.
How we can assist clients with Making Tax Digital
- For clients where we prepare your VAT return: We have you covered and we will make your MTD VAT return submissions when required. Therefore, no further input is needed from your side, unless we contact you.
- For clients who prepare their own VAT return: You should check your accounting system is compatible. If not, your options are:
- Most cost and time effective: Use a bridging software to continue using your current system or spreadsheets. We can do this for you through our bridging software, however please note that to do so we must be registered with HMRC as your Agent, which can take several weeks for HMRC to authorise, so please contact us in good time ahead of the April deadline to arrange this;
- Most future-conscious and potentially value-adding: Review upgrading or changing software provider. Please contact us as we may be able to secure preferential rates from market leading software providers.
More FAQs
How do I register to make my first MTD submission?
Read our guidance covering the areas you should consider in preparation for registering with HMRC’s new MTD service.
Can I still use my spreadsheets?
You will no longer be able to maintain your records manually. If you use spreadsheets and wish to continue using them they will need to be linked to compatible software that is capable of connecting to HMRC systems via an Application Programming Interface (API).
Will there be penalties for non-compliance?
Penalties and fines will be issued for failure to comply with the Making Tax Digital system. A points-based model with taxpayers receiving a point/s each time they fail to submit on time will be introduced.
HMRC is expected to allow a 12 months soft-landing period before issuing financial penalty fines for Making Tax Digital late submissions, however fines for inability to maintain digital records are likely to commence April 2019.
Further details on the intended plans for Making Tax Digital penalties can be found here.
How might Making Tax Digital change in the future?
The governments plan is that eventually, almost all businesses and most individuals will need to comply with Making Tax Digital. For businesses, quarterly returns will replace the annual corporation tax return and the business pages of self-assessment returns.
Therefore, you will need to make a quarterly return each time your business pays tax – meaning that, eventually, you’ll be required to submit a quarterly VAT return and a quarterly corporation/income tax return.
Making Tax Digital is also likely to be extended in the future to individual taxpayers. The government will confirm this at a later date, and it is not expected to be extended before 2020.
How we can help you
Our team are ready to help ensure that you are able to comply with Making Tax Digital.
As certified and experienced Xero, QuickBooks and Sage users, we can advise and help you set up and integrate these popular systems. In some cases we can secure preferential rates than going direct to these software providers.
We can also assist with selected and setting up bridging software if this is required.
If you would like to discuss how we can assist please contact our team to discuss this further.
Award-winning chartered accountants offering tax, audit and advisory services.