Making Tax Digital – a need to know guide

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Making Tax Digital (MTD) is the most fundamental change to the administration of the tax system for at least 20 years. With just over a month to go until the deadline, it’s worrying to see that recent research shows that almost two-thirds of businesses are saying that they need more support and are still in the process of working out what they need to do…

We’ve put together a need to know guide which includes some useful links to the information you need to prepare your business. 

Businesses that are VAT-registered and have an annual taxable turnover of more than £85,000 will be the first to be mandated into the government scheme, from 1 April 2019.

MTD is intended to modernise the tax system, and make it easier for businesses and eventually individuals to record and report their tax accurately.

Those included will be required to keep digital records and file quarterly and year-end returns with HMRC through compatible software.

Here is a quick video by HMRC that gives an overview:

 

The essential elements for businesses and landlords are:

  • Paper records will no longer be sufficient: It will become mandatory for almost all businesses and landlords (self-employed, partnerships and limited companies) to use software or a spreadsheet to keep accounting records. Paper accounting records will cease to meet the requirements of tax law.
  • Quarterly reporting: There will be a requirement to submit updates to HMRC each quarter directly from accounting software, within one month of the end of each quarter.

When does it start?

HMRC hopes to have most of the UK’s 2.67 million VAT-registered businesses mandated into MTD by 1 June 2019, although VAT-registered businesses with more complex accounts have until 1 October 2019.

The first VAT returns will be submitted using compatible software from the start of their first VAT return period beginning on or after 1 April 2019, or 1 October 2019 if they are covered by the six-month deferral.

VAT: If your business is registered for VAT and your turnover is above the VAT threshold you will be required to keep digital accounting records and to file your VAT returns using MTD compliant software from April 2019 (the first VAT quarter starting on or after 1 April 2019). The current online VAT return will not meet the requirements.

 Income Tax (self-employed, partnerships, trusts and landlords who compete self assessment tax returns): MTD is expected to become mandatory for income tax reporting, but not before 2020. Pilots of MTD for income tax started on a small scale in April 2017 and will be rolled out to all businesses who wish to participate in the coming months.

Corporation Tax (limited companies): The timings for MTD for corporation tax have yet to be confirmed but it will not become mandatory before April 2020.

What are the exemptions?

  • There are exemptions for those who are not able to engage digitally for religious reasons or due to a factor such as age, disability or location (eg, no availability of broadband). These exemptions are the same as the current exemptions for VAT online filing.
  • VAT registered businesses with turnover of less than the VAT threshold (ie, businesses who have registered voluntarily) will initially be exempt from MTD VAT reporting but this exemption may be removed from 2020 or later.
  • When MTD for income tax becomes mandatory there will be an exemption for businesses and landlords with a very small turnover; the level of this exemption has not been set.

Where can I go for help? 

Visit Help and support for Making Tax Digital to watch webinars and videos for help with Making Tax Digital for Income Tax and VAT

Here are some other useful links:

  1. How Making Tax Digital for VAT affects your business
  2. Getting ready for April 2019
  3. Getting compatible accounting software
  4. Keeping digital VAT records
  5. Agent services and Making Tax Digital
  6. Creating an agent services account
  7. Signing up a client for Making Tax Digital for VAT
  8. Making Tax Digital for Income Tax