Making Tax Digital - MTD

What it means for you ...

Increasingly, businesses are seeing the benefits of digitisation.  Millions of businesses are banking, paying bills and interacting with their customers and suppliers online, and may already be using cloud or online accounting software.

HMRC's ambition is to become one of the most digitally advanced tax administrations in the world, Making Tax Digital is making changes to the way the tax system works, tax administration will be more effective, more efficient and easier for tax payers to get their tax right.

The primary legislation for MTD relating to VAT and Income Tax is contained in the Finance (No 2) Act 2017, which details the framework in which MTD will operate, with secondary legislation for VAT laid in February 2018, and coming into force in April 2019.

MTD for Income Tax is available now on a voluntary basis for the smallest businesses and landlords.

VAT and Making Tax Digital -

From the first VAT accounting period starting on or after 1st April 2019 registered businesses with a taxable turnover above the VAT threshold, currently £ 85,000, are required to keep their VAT business records digitally and send their VAT returns using MTD compatible commercial software.  Deadlines for submitting your returns are not changing.

Businesses will need to use software to keep their business records digitally.  This may include dedicated record-keeping software or a combination of software packages or spreadsheets.

From April 2019 existing software that prepares a VAT return to send to HMRC must be MTD compatible.  This means that it can integrate with HMRC and sent the VAT return electronically, the ability to manually key-in the 9 box VAT Return via the HMRC portal will be removed for those businesses falling into the above category.

For those businesses using spreadsheets, providing the spreadsheets are of a design which can be digitally imported into MTD compatible commercial software, these can still be used.  What is important is the digital transfer of information between the spreadsheet and the MTD compatible commercial software, re-keying of information is not permitted.  Primary data is captured in the spreadsheet, and from then on all information must be digitally transferred.  For most spreadsheet users this will not be practical, and MTD compatible commercial software will be the most efficient and cost effective alternative for compliance.  Regardless of turnover, there are numerous benefits to a business from using software to keep digital records.  By keeping up to date digital records in real time, businesses are less likely to lose receipts and digital records can also reduce the risk of errors due to lost or incorrectly recorded invoices.  Going digital makes managing business finances more straightforward.

More information regarding MTD for VAT and Income Tax will be published when updates and amendments are issued by HMRC.