25th January 2019
Making Tax Digital (MTD) is all over the business press at the moment and I have even noticed the likes of QuickBooks and Xero advertising on the TV and radio with their core message being ‘MTD compliance’. Like most new pieces of legislation or changes to the business taxation system, MTD has been coming our way for some time and so it shouldn’t come as a surprise to anyone. However, you are also busy running your business and so I understand that whilst you are probably aware of the changes, like GDPR and Auto Enrolment before it, you only tend to ‘tune in’ to these matters when action is necessary or imminent.
Whilst others have been banging on about MTD for much of the second half of 2018, I know that we are now at a point whereby this is beginning to bubble to the top of people’s agendas. So, I wanted to provide a simple explanation of what MTD is and what you need to do.
Making Tax Digital – what’s the story?
Making Tax Digital (MTD) is a long-term Government initiative designed to simplify the process of tax reporting and collection. The utopian aim being that all tax is calculated, reported and paid in almost real time – ultimately removing the need for periodical tax returns and big bills – both business and personal. The original plan for MTD was that it would be fully implemented by the early 2020s but Brexit preparations, technical hitches and a dose of reality has meant there is now no defined date for the utopian objective to be realised. HMRC is however, continuing to rollout specific areas of the plan such as MTD for VAT….
What is Making Tax Digital for VAT?
Whilst most businesses already keep digital accounting records and manage their VAT transactions using bookkeeping/accounting software, Making Tax Digital makes this a requirement. Furthermore, the legislation states that the software must be capable of keeping and maintaining VAT data, preparing VAT returns electronically and then communicating these directly to HMRC via the Application Programming Interface (API).
The new rules apply to all businesses that have a taxable turnover that exceeds the VAT threshold, currently set at £85,000. Only businesses with a taxable turnover that has never exceeded the VAT registration threshold will be exempt. There are very few other exemptions.
When does Making Tax Digital for VAT come into force?
Businesses need to be compliant from their first VAT quarter starting on or after 1st April 2019.
What do I need to do to comply with Making Tax Digital?
Firstly, determine if your business falls under the umbrella of MTD for VAT i.e. is your taxable turnover above £85,000, or has it ever been?
Secondly, if you are already using software, check that it meets the standards set down by HMRC. The list of MTD approved applications is here HMRC MTD Approved software
If you are not using software for all or part of your bookkeeping/accounts – especially VAT calculation, you will need to move to an approved system in time for the 1st April deadline. I can help – all the systems I use and recommend are compliant. Don’t panic!
If you’re not sure…
Contact me or speak to your accountants. They will happily advise you.