With just a few weeks to go until HMRC introduces its new Making Tax Digital (MTD) initiative, here’s a quick guide to all you need to know.
What is it?
HMRC says “Making Tax Digital (MTD) is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs”
HMRC wants to become one of the most digitally advanced tax administrations in the world and ensure their system is:
- more effective
- more efficient
- easier for taxpayers to get their tax right
Therefore, UK businesses will need to store digital records and submit updates to HMRC using recognised accounting software.
When is it happening?
From 1st April 2019
Who does it affect?
All businesses with a taxable turnover above the VAT threshold (currently £85,000) will be required to store financial records digitally and submit VAT returns from MTD-compatible accounting software.
If your business has a taxable turnover below the VAT threshold you can still sign up for MTD voluntarily, something HMRC is encouraging.
Businesses can also sign up for MTD for Income Tax.
HMRC suggests that MTD will help you stay on top of business record keeping, allowing you (and your agent, if you have one) to better understand how your business is performing.
What do you need to do?
You will need to keep your business records digitally from the start of your accounting period. If you already use software to keep your business records, check your software provider’s plans to introduce MTD-compatible software.
If you don’t currently use software, or your software won’t be MTD-compatible, you’ll need to consider what software is most suitable.
HMRC has published details of all the VAT and Income Tax software available for MTD.
What about spreadsheets?
HMRC statesthat spreadsheets can be used to calculate or summarise VAT transactions to gather the information you need to send HMRC. But if you use spreadsheets to keep business records, you’ll need MTD-compatible software so that you can send HMRC your VAT returns and receive information back from HMRC. Bridging software may be required to make spreadsheets MTD-compatible.
Physically re-typing the information into another software package isn’t permitted
What records are required?
MTD does not require you to keep additional records for VAT, but just to record them digitally.
Your digital records should include, for each supply:
- the time of supply (tax point)
- the value of the supply (net excludingVAT)
- the rate ofVAT
Your records should also include information about your business, including business name and principle business address, as well as your VAT registration number and details of any VAT accounting schemes you use.
HMRC also launched a voluntary MTD pilot for Income Tax in spring 2018 and some businesses and agents are already keeping digital records and providing updates on to HMRC as part of the pilot. You might want to consider using software to keep business records digitally and send Income Tax updates to HMRCinstead of filing a Self Assessment tax return.