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6th March 2019
Making Tax Digital is almost upon us. On April 1, 2019, HMRC’s new initiative will be launched and businesses will eventually have to submit all their taxes digitally. As we discussed in a previous blog, this will hopefully make it a simpler, more effective UK tax system.
This is a crucial period for UK businesses, with Great Britain set to leave the EU on March 29, just days before Making Tax Digital (MTD) comes into effect. But while, at the time of writing, there still remains a great deal of uncertainty over Brexit, there are no such doubts regarding MTD and the transformation will begin with MTD for VAT on April 1.
Once that has been implemented, MTD for income tax and MTD for Corporation Tax are due to follow, although not before April 2020. However, there is one update regarding MTD for VAT we should all be aware of before April 1.
HMRC have stated that businesses whose taxable turnover exceeds the VAT registration threshold will need to keep their records digitally, using MTD-functional compatible software. The VAT return will have to be created from that software, for return periods starting on or after April 1, 2019, unless the mandation deferral period of six months applies. For the minority of businesses to which the deferral applies, the MTD for VAT obligations will begin for return periods on or after October 1, 2019.
Businesses will face several issues when MTD for VAT comes into force. Here, we take a look at a few:
You can get more information on these challenges by visiting tax.org.uk, where a detailed table has been compiled that delves further into the issues that MTD for VAT will create.
For VAT-registered businesses with a taxable turnover above the VAT threshold, they will need to:
Businesses must start following MTD rules for the first day of their first VAT period that starts on or after April 1, 2019.
There is no settling-in period available, so that means you must ready by April 1, 2019.
If you do not transfer to MTD, you will be penalised by HMRC.
Making Tax Digital will begin, for most businesses, on April 1, 2019. For deferred businesses, MTD for VAT begins in October 2019.
From April 2020 and beyond, Corporation and Income Tax will follow suit, so businesses with income between £10,000-£85,000 will be required to follow the same processes.
The taxable turnover threshold which determines whether a person must be registered for VAT will remain at £85,000. The taxable turnover threshold which determines whether a person may apply for deregistration will remain at £83,000.
No, MTD-compatible software must be used. If you or your business already uses accounting software, you will need to make sure it is compatible with HMRC.
If you don’t use digital software, for example relying on Excel or even paper, you will need to implement MTD-enabled software.
MTD for VAT will start for the majority of businesses on April 1, 2019, but for some it will be deferred until October 2019. Among those deferred businesses are:
Two or more companies or limited liability partnerships – known as ‘bodies corporate’ – can register as a single taxable person or VAT group if:
VAT groups are classed as a deferred business, so have until October 2019.
There is an abundance of software already available – and some still in development – that will be compatible for MTD for VAT.
Your business must have the correct software before you sign up to MTD but, if you’re already using software to keep records, ask your provider if they plan on making the software compatible with MTD.
Software that is already available allows you to:
An in-depth list of compatible software providers or products, both already available and still in development, can be found here.
If your taxable turnover drops below the VAT registration threshold at any point after April 1, 2019, you are still required to continue to keep digital records and send HMRC your VAT returns using MTD-compatible software.
This obligation does not apply if you de-register from VAT or if you are exempt from MTD for VAT.
You need to tell HMRC in writing, either by post or via email. Businesses can opt out if they are under the threshold.
Many VAT schemes, and some, such as the Flat Rate Scheme, are more common than others.
For an explanation of what details must be recorded and preserved digitally, see here.
Any records that currently need to be retained but are not specified can be retained either digitally or in another format (such as paper).
Spreadsheets will not meet all the requirements for MTD for VAT. If spreadsheets are the primary business records of the transactions, then copying and pasting data from a spreadsheet is not permitted under MTD for VAT legislation.
Instead, your business will need to ensure digital records are kept.
Digital records are a digital image or copy of a paper record, for example a photograph, that can be held in an electronic or digital format and which can be accessed on a laptop, a mobile phone, a tablet or a desktop computer.
A digital link will then allow that data to be imported, or exported, between programs without the need for manual intervention.
RDG Accounting is here to lend a hand and make sure you are ready, and that your transition is as smooth as possible.
We are already helping businesses make the transition to Making Tax Digital and ensuring they meet the deadline.
If you’d like our help or wish to discuss MTD for VAT further with us, please fill in your details below and one of the team will be in touch. Alternatively, give us a call on 0333 200 0714.
For more information on MTD for VAT, there are a wide number of useful links out there to help you understand and come to terms with what will be required. We’ve picked a few here that will help you:
have you read our previous post?