Don’t Forget: Making Tax Digital is coming!
Only 40% of the businesses who will be required to transition to Making Tax Digital (MTD) next April are aware of it, says a report from the House of Lords economic affairs committee.
Furthermore, with the official launch of MTD coming hot on the heels of the nation’s official exit from the EU, smaller businesses are likely to be feeling the heat when it comes to implementing the new systems.
If you are registered for VAT and your taxable turnover is above the threshold, MTD will apply to you.
If your taxable turnover drops below the VAT registration threshold at any point after 1 April 2019 you are still required to continue to keep digital records and send HMRC your VAT returns using MTD-compatible software. This obligation doesn’t apply if you de-register from VAT or if you are exempt from MTD for VAT.
If your business has a taxable turnover below the VAT threshold you can also sign up to MTD voluntarily.
MTD does not require you to keep additional records for VAT, but you will need to keep your business records digitally from the start of your accounting period.
If you already use software to keep your business records, check your software provider’s plans to introduce MTD-compatible software. If you don’t currently use software, or your software won’t be MTD-compatible, you’ll need to consider what software is suitable for your requirements (more below).
Your digital records should include, for each supply, the time of supply (tax point), the value of the supply (net excluding VAT) and the rate of VAT charged. They should also include information about your business, including business name and principle business address, as well as your VAT registration number and details of any VAT accounting schemes you use.
Compatible software is a software product or set of software products that between them support the MTD obligations of keeping digital records and exchanging data digitally with HMRC through the MTD service. If more than one application is being used, data that flows between those applications must also be exchanged digitally, called ‘bridging software’.
Digital records can be kept in a range of compatible digital formats. They do not all have to be held in the same place or on one piece of software. For example, a spreadsheet can be a component of digital record keeping provided the product that consolidates records, or summary records from the spreadsheet, can exchange data digitally with HMRC.
HMRC will give businesses until 31 March 2020 to make sure there are digital links between software products. Before that date, cut and paste will be an acceptable way to transfer information.
The House of Lords economic affairs committee has noted the fact that no free-to-use compliant software is currently available, and is recommending that a basic, free software option is provided.
Sign up for the pilot
VAT-registered businesses are now able to join the MTD pilot, so instead of waiting until next April you can get compatible software now and try the new way of submitting your returns so you’re ready when the changes come in.
, then click the ‘sign up’ button and follow the instructions.
, which contains YouTube videos and webinars explaining what’s changing, the step-by-step process to sign up to MTD, and further advice about compatible software and digital record keeping.
The IGA is also on-hand to help, and we will share further information as it becomes available.