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Get ready for Making Tax Digital (MTD) – New tax returns legislation

Get ready for Making Tax Digital (MTD) – New tax returns legislation

31 October 2018

HMRC is changing the way you submit your VAT Returns due to the “Making Tax Digital for VAT” legislation, which comes into effect from 1st April 2019.

This means that businesses with a turnover above the VAT threshold (currently £85,000) will be required to:

  • Keep their records digitally (for VAT purposes only), and
  • Provide their VAT return information to HMRC through Making Tax Digital (MTD) functional compatible software

Is MTD for VAT mandatory for my business?

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.

How to prepare for MTD

Keeping records digitally

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.

MTD-compatible software

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.

HMRC has published details of the VAT and Income Tax software currently available for MTD here.

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.

Click here to check that your business is eligible to sign up, then click the ‘sign up’ button and follow the instructions.

Further Advice

Click here to visit the .Gov Help and Support for Making Tax Digital website, 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.