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Making Tax Digital for Business

Making Tax Digital (MTD) is changing the way you need to interact with HMRC. The subject can be quite confusing, though, and that’s why we’ve created two videos to explain the main points, and to help ensure you get up to speed with the changes in good time:

The Basics – 3 minutes, 10 seconds of your time well spent
What you need to know – the important points and timescales

VAT-registered businesses are the first to be affected by MTD

Since April 2019, businesses who have a turnover above the VAT threshold, currently £85,000, are required to register for digital VAT filing and submit quarterly VAT returns online using the Making Tax Digital for Business (MTDfB) system, in order to meet their VAT obligations. Smaller businesses will not be required to use the system, although they can choose to do so voluntarily.

Businesses who move to online accounting should improve efficiency, boost profitability and make the transition as painless as possible. Businesses already using Making Tax Digital compliant software will see no change to their procedures during this period.

However, businesses that currently keep their records in a cashbook, spreadsheet or non-MTD-compliant software, need to make changes as the ability to login to HMRC’s website and key-in the VAT return figures will be removed for businesses with a turnover greater than £85,000.

Going digital: who and when?

What the proposals mean in practice is that businesses operating above the VAT threshold have to now use a form of digital record keeping, and have to submit VAT return information to HMRC via MTDfB compatible software. The requirements will remain in place even if such businesses subsequently fall below the VAT threshold, ceasing only on deregistration.

Digital record keeping is now mandatory from 1 April 2019, and submission of VAT returns becomes digital for return periods starting on or after 1 April 2019. When MTDfB was first proposed, the idea had been to align VAT and income tax submissions, but for now at least, there is to be no change to the VAT return or payment dates.

The government has said that it won’t widen the scope of Making Tax Digital beyond VAT until the system has been shown to work – which won’t be before April 2020 at least.

As regards income tax, the government has said that keeping digital records and providing quarterly updates will not become mandatory before at least April 2020 – although it will be possible to start using the MTDfB regime voluntarily earlier than this.

So when will you actually have to start filing your VAT records Digitally?

The quick answer is that you join from the start of your 1st VAT quarter starting after 31st March 2019.

So…
If your VAT quarter ends 31/03/19 the first return affected will be the quarter ending 30/6/19
If your VAT quarter ends 30/4/19 the first return affected will be the quarter ending 31/7/19
If your VAT quarter ends 31/5/19 the first return affected will be the quarter ending 31/8/19

…And if you submit monthly returns, the April 2019 return will be the first under MTD.

What are the business benefits of Making Tax Digital?

More transparency: Having an online tax account which they can access at anytime, business owners will be able to see what information HMRC holds on them, and as a result, won’t waste time re-submitting it. As well as being able to check their details are correct and up-to-date at any time, business owners will also be able to access more-tailored services.

Real time data:
Business owners will no longer have to wait until the end of the year to find out how much tax they have to pay. With a digitalised tax system, HMRC will collect and process tax information in real time to help prevent errors and stop ‘tax due’ or ‘repayments owed’ building up.

Online banking: Much like the online account they have for their personal bank account, by 2020, business owners will be able to view their their liabilities and entitlements as a single financial account.

More flexibility: Being able to contact HMRC on its website via webchat and secure messaging, as well being able to receive and send data via whatever payment software they use, business owners can interact with HMRC at a time convenient to them.

Making Tax Digital for Business software

Under the new MTDfB rules, businesses have to use ‘functional compatible software’. This means a ‘software program or set of compatible software programs which can connect to HMRC systems via an Application Programming Interface (API)’. This must be capable of:

  • keeping records in digital form as specified by the new rules
  • preserving digital records in digital form
  • creating a VAT return from the digital records held in compatible software and submitting this data to HMRC digitally
  • providing HMRC with VAT data on a voluntary basis
  • receiving, via the API platform, information from HMRC to ascertain compliance. It is as yet unclear what this means, but it may relate to HMRC’s ability to send compliance prompts and nudges

Use of spreadsheets

Many businesses currently use spreadsheets as part of their VAT records. Businesses using spreadsheets need add-on ‘bridging’ software to comply with the MTDfB requirements if they don’t want to move to full accounting software. A list of approved bridging software solutions is available on the HMRC MTD website.

Helping with the challenges

Whatever the size of your business, there is a time of great change ahead, and Burton Sweet are on hand to help with the challenges.

There are issues that VAT-registered businesses would do well to consider now. One key area is whether business transactions are currently recorded digitally. If they are not, consideration should be given to recording some/all transactions on a digital basis. Burton Sweet are available to advise on the systems available – we are experts in Xero, Sage and QuickBooks and can train you as well.

We would be happy to help you with any issues arising from Making Tax Digital. We would also be able to undertake bookkeeping services for you to enable you to comply with the requirements. As further details about Making Tax Digital emerge from HMRC, we will of course continue to keep you up to date.

Please contact your Burton Sweet adviser to discuss MTD in more detail.

Contact

For more information about this, please contact :

Nigel Harris

Nigel Harris

Partner - Corporate and Client Services

Rachel Finch

Rachel Finch

Partner