Making Tax Digital – Are you prepared?
Making Tax Digital (MTD) is actually happening, and soon! Let us see how it will change things in your firm. Firstly, MTD will only affect the submission of VAT returns at this stage. Proposals to widen the scope to include other business taxes have been put on hold until April 2020 at the earliest.
Here is what you need to know:
- The MTD rules apply from the first VAT period starting on or after 1 April 2019.
- Any business with taxable turnover above the VAT registration threshold (currently £85,000) must comply with the rules set out in the VAT Notice 70022.
- For a small minority of businesses that have more complex requirements, HMRC made a decision to defer the rules by 6 months. These businesses have until
1 October 2019 to start keeping records digitally and using MTD-compatible software to send their VAT returns to HMRC.
- This applies to the following categories: trusts, ‘not for profit’ organisations that are not set up as a company, VAT divisions, VAT groups, those public sector entities required to provide additional information on their VAT return (such as government departments and NHS Trusts), local authorities, public corporations, traders based overseas, those required to make payments on account and annual accounting scheme users.
- A business which is voluntarily registered for VAT as at 1 April 2019 will not have to follow the MTD rules at that stage but can choose to do so voluntarily. Should its turnover subsequently exceed the threshold, then the MTD rules will apply from the start of the next VAT period.
- The new rules require all VAT return data to be submitted digitally i.e. a transfer of data directly from the accounting records. It will no longer be possible to enter the VAT return information manually online via HMRC’s website.
- There will be a period of grace for digital links in the first year. However, this will not apply to ‘bridging’ software i.e. software introduced simply to enable a financial software package to submit the VAT return. In this case, transfers of data must be digital from day one.
- A spreadsheet that is capable of recording and preserving digital records can still be used provided that it is API-enabled (Application Program Interface) and can transmit information digitally to HMRC, or if it is used in conjunction with bridging software.
We recommend you talk to your software providers at an early stage to ensure that software updates will be provided in time to comply with the new rules.