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10 things you need to know about Making Tax Digital
The deadline for Making Tax Digital is looming and many businesses are gearing up for the changes. Datel and Sage are here to support your transition to MTD, leaving you to focus on realising your business ambition.
If you are starting to look at Making Tax Digital, here are some of the basics to enable you to understand how it applies to your business. With Making Tax Digital no two companies will have the same issues and Datel can help you to understand the technology requirements to be ready for the April 2019 deadline.
- 1. What is MTD?
Making Tax Digital or MTD is an initiative, introduced by the HMRC, that has been designed to make the UK Tax system more efficient, effective and easier for taxpayers. It begins on 1 April 2019 for VAT, but other tax components – such as income tax and corporation tax – have been placed on hold until April 2020. In short, it is a system by which tax information for businesses is to become digitalised, leading to fewer errors and a clearer audit trail.
- 2. MTD for Business
Businesses/organisations, including those with property income, will now be required to maintain digital records of accounting. Paper records will no longer meet the legal requirements in tax legislation. Compatible software must be used to submit returns to HMRC, using the HMRC’s Application Program Interfaces Platform to submit information. The current services for online tax will be withdrawn for those within the scope of the MTD rules.
- 3. MTD and VAT
The Financial Secretary to the Treasury and Paymaster General announced that Making Tax Digital for VAT will come into effect from April 2019. VAT-registered businesses that are above the £85k threshold will have to keep digital records and submit their returns using compatible software. MTD will be available on a voluntary basis for other businesses.
- 4. Exemptions
The exemptions that already apply to electronic VAT returns will stand to cover digital record keeping. These apply to businesses whose beliefs are incompatible with electronic communication use, practising members of a religious society, to whom an insolvency procedure is applied, and those who commissioners are satisfied that it is not practicable to make a return using an electronic return system i.e. due to disability, age, remote location.
- 5. The Content of Digital Records
The information that a business needs to keep on a digital record will be specified in the new regulations. This will include the business name, the principal place of business, its VAT registration number, information about the VAT accounting schemes used, and the VAT account that each VAT-registered business must keep by law.
- 6. Flat Rate Scheme
Digital record-keeping requirements for flat rate scheme users will mirror the requirements currently in place. Scheme users must keep a record of all sales, but only need to keep a record of purchases that relate to capital goods with a value of £2000 or more (VAT inclusive). Businesses that use this scheme do not claim input VAT on most expenses but account for output VAT as a percentage of turnover.
- 7. Voluntary Periodic Updates
VAT information will be able to be submitted periodically, on a voluntary basis; thus, providing an opportunity to provide information more frequently than is obligated. This feature is expected to be used mainly when providing an Income Tax update. However, it could also be used to update a change in circumstances. This won’t affect the VAT return obligation and will not create an early payment request.
- 8. Supplementary Data
When it comes to VAT returns, the simplistic nature of the ‘9 box’ has both advantages and disadvantages. Although it decreases the effort needed to sort through the tax returns, it does not provide any information about how the figures where reached. This makes it difficult for the HMRC to find non-compliant activity. With the new legislation, the HMRC will be able to test the extent to which both themselves and businesses can benefit from this data.
- 9. Helping Businesses, the Self-Employed and Landlords
The latest tax figures have shown that many people can’t get their tax right with many avoidable mistakes. Thanks to the accuracy of digital records, along with the help functions built into the software products and the fact that information will reach the HMRC directly, many transposition errors will be avoided and thus, in turn, this will reduce the tax lost. The process of introducing this mandate has been purposely delayed due to concerns about the changes. This is why MTD will only be mandatory for VAT from at least 2020. Information packs are available on the HMRC website to help with any additional information required.
- 10. How does this affect you?
As previously stated, unless a business is earning over the £85,000 threshold for VAT registration, no mandatory digital tax compliance will be necessary until at least April 2020. However, businesses can begin preparing for the inevitable change by gathering new information digitally and in compliance with the new guidelines. This also applies to those above the VAT threshold, who have a smaller time-frame to adhere to the new rules set out by MTD.
If you would like any further information on MTD or the software that will be required to submit returns to HMRC, please feel free to get in touch. Give us a call on 0800 0775 888 and one of our friendly experts will be happy to answer your questions or queries.
