Making Tax Digital
What is Making Tax Digital?
Making Tax Digital (MTD) will be the biggest change in the UK tax system since the introduction of self-assessment in 1996.
HMRC aim to digitally transform tax administration so that the new system will be more effective, efficient and easier for taxpayers to calculate their tax correctly. In doing so businesses and relevant individuals will need to keep and maintain their business records in a digital format and submit quarterly summary data online, using MTD compatible accounting software.
If you currently use an accounts package you will need to check with your software supplier that it will be able to submit data to HMRC under the new MTD system. The current list of HMRC approved MTD software suppliers can be found here.
- Paper-based tax returns will no longer be accepted other than in exceptional circumstances.
Who will it affect and from when?
Ultimately MTD will affect all businesses and individuals, but is likely to be rolled out in stages.
Stage 1 of MTD starts from 1 April 2019. From this date businesses who are VAT registered with a taxable turnover above the VAT threshold (currently £85,000) will have to keep digital records for VAT purposes and send their returns to HMRC using MTD compatible software. This first stage is sometimes referred to as MTD for VAT or MTDfV.
At Barkers we are currently contacting all of our clients who will need to transition to MTD in time for the 1 April 2019 deadline.
The next stage is likely to affect the self-employed, property landlords and companies paying corporation tax. Initially HMRC had said this would start from April 2020, however with the uncertainties surrounding the Brexit transition, this has been put on hold until further notice.
As soon as we receive further updates from HMRC on when MTD will come into effect for these types of businesses, we will contact our relevant clients.
In the future MTD will also affect individuals. Whilst they won’t have to submit tax returns, they will be able to confirm their income using the Government’s new online verification system called GOV.UK Verify. This system will show individuals’ income which will be based on information provided by their employers and their banks.
What is the process for submitting MTD VAT returns?
From 1 April 2019, VAT registered businesses will continue to submit quarterly VAT returns. Relevant businesses will not be required to keep additional records for VAT purposes, only to record what you have in a digital format. The deadlines for sending the returns and making payments will also remain the same as per your current regime. The main change is that from 1 April 2019 businesses will need to send their VAT returns to HMRC using MTD compatible software.
Submitting VAT returns in this new format will become mandatory for all relevant businesses whose VAT return period starts on or after 1 April 2019. HMRC has stated that for the purposes of MTD taxable turnover includes standard, reduced and zero rated income. However, it does not include exempt supplies or income outside the scope of VAT.
From 1 April 2019 VAT registered businesses who are within the scope of MTD will no longer be able to use the HMRC portal to submit their VAT returns.
What are the benefits of MTD?
Whilst MTD will bring significant change to some businesses it can also create many benefits to businesses. These include:
- Using MTD compatible software to log all your business records, which can reduce input errors and save time compared to manual inputting and calculations.
- Producing real-time accounts, so you no longer have to wait several months after your year-end to receive information relating to the performance of your business.
- Improved business decision making because you’ll have more up to date and accurate financial information about your business.
- A better understanding of what your tax liabilities will be and therefore no nasty surprises. This will also help with the implementation of tax planning activities that could minimise your future tax bills.
- Paying your tax quarterly which may help the business’ cash flow position, rather than having to pay one or two large sums during the year.
Many people are already using online banking, shopping and bill payments, so going digital with your business records is a natural progression.
Don’t worry, Barkers are here to help!
The transition to MTD can appear very complex and confusing, but don’t panic, we can help you. Whether you’re already using online accounting packages or if you are still producing paper receipts for your bookkeeper or accountant to process, we can help make this process as seamless as possible for you.
In terms of MTD compatible software, as a practice we use IRIS Kashflow and can provide initial training and ongoing support for our clients who want to use this system.
For those that are moving onto a new cloud accounting package, or are currently processing your own invoices and receipts, we can undertake some or all of the bookkeeping for you. Our Book-keeping service page gives you more information on how we can assist.
Similarly, if you are doing your own bookkeeping but would like someone to check your work periodically to make sure it is correct, we offer a Book-keeping Healthcheck service.
In short, we can do as much or as little as is required to help you make the transition to MTD. We can help you to produce accurate and timely business information as well as giving you a better understanding of how your business is performing.