HMRC’s Making Tax Digital (MTD) initiative goes live from 1 April 2019 – so the countdown is on. It’s important to ensure that you can meet the new requirements for digital record keeping and understand the new mechanism for submitting VAT returns to HMRC.
MTD is part of the Government’s vision to create a more modern, digital service that will help (or attempt to help) businesses get their tax right through the use of technology.
HMRC estimates it loses over £8-9 billion in tax every year due to errors and mistakes. The theory is that replacing manual processes with digital record keeping will help reduce the tax gap.
Are you affected?
If you are a VAT-registered business with taxable turnover above the VAT registration threshold (currently, £85,000) then YES you are affected initially. This includes the self-employed, landlords, unincorporated businesses, companies, limited liability partnerships and charities.
From 1 April 2019 you’ll need to keep your VAT records digitally.
You’ll also need to file your VAT returns to HMRC electronically using ‘functional compatible software’ – software or spreadsheets that can connect to HMRC via an application programming interface (API).
You may be forgiven for thinking that as you already submit your return online – via HMRC’s Government Gateway System – you’re MTD compliant and don’t need to worry. This is not the case. This portal will be closing from 1 April 2019 for those affected by MTD. Therefore, you’ll need to consider whether your current software is compliant and if not, whether an upgrade or move to a new accounting system, or bridging software, is required.
HMRC believes that many businesses could benefit themselves – not just the tax authority – from digital record keeping as required under MTD. For example, businesses that rely extensively on manual processes could suffer from errors in their records and delays in getting a snapshot of their financial status. In contrast, using a digital system brings a number of benefits. Businesses can get a better understanding, more quickly, of how they are performing. They will be able to access up-to-date information on their tax position, with tax information available in one place. They can plan and budget more effectively, and work online collaboratively with accountancy and tax advisers.
Preparing for MTD
MTD raises some challenging questions.
- What counts as ‘functional compatible software’?
- Is buying a new software package necessary?
- How much information needs to be kept digitally?
We can help you answer these questions and many more. We’ll support your preparations with our VAT and digital solutions to ensure you’re ready for MTD.
The more prepared you can be for the start of MTD, the better. VAT is the first tax to be covered by the MTD requirements, but other taxes will be phased in over time.
We’ll look in more detail at the technical and practical implications for your business of MTD for VAT. If you haven’t begun preparing for its introduction in April 2019, it’s vital you start now.
We can help – please get in touch.