Making Tax Digital (MTD) | Wright Vigar

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Making Tax Digital

Making Tax Digital (MTD) is a HM Revenue and Customs (HMRC) initiative to digitalise the UK tax system. Businesses and landlords will be required to use software to maintain their records and to update HMRC quarterly, starting with VAT.
  • VAT turnover threshold currently £85,000
  • Quarterly VAT updates from 1 April 2019
  • Support and advice to achieve compliance
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Service Details

Making Tax Digital (MTD) is a HM Revenue and Customs (HMRC) initiative to digitalise the UK tax system. Businesses and landlords will be required to use software to maintain their records and to update HMRC quarterly, starting with VAT.

Under MTD, businesses above the VAT threshold will be required to keep their records digitally and provide HMRC with quarterly VAT updates from the beginning of their first VAT quarter starting on or after 1 April 2019.

Quarterly updates will have to be submitted to HMRC from software via an Application Programme Interface (API). It is therefore important for such businesses to make sure that they have an accounting package which can do this and, if not, ensure they do in good time for their first quarterly VAT update under MTD.

Commenting on the implementation timetable, Co-chair of ATT’s Technical Steering Group said:

“The first businesses to come into MTD will be those with a VAT quarter running from 1 April to 30 June 2019. If they happen to have a 30 June year end, they will need to have an MTD-compliant accounts package in place by 1 July 2018 or risk changing their accounting package mid-year. This gives them only a short time to select and integrate a new package if their current one would not be MTD compliant.

HMRC will be providing an online tool to help businesses identify which software packages will meet their MTD needs but until that is available it will be very difficult for businesses and the agents advising them to make an informed decision.”

Whilst we wait for the detail of the full MTD implementation process to evolve, businesses should be able to gain some comfort in the Government’s confirmation that it will not widen the scope of MTD beyond VAT before the system has been shown to work. This means that businesses can focus on this one area for now.

The VAT regulations will specify the information a business needs to maintain in digital format and will include:

  • The business name, principle place of business and VAT registration number, along with information about VAT accounting schemes used;
  • The VAT account that each VAT registered business must keep, by law – this is the link between primary records and the VAT return; and
  • Information about supplies made and received.

Those reporting under the VAT flat rate scheme will not have to report under MTD except for purchases relating to capital goods with a VAT inclusive value of £2,000 or more.

Impact on businesses

Quarterly reporting for VAT is already mandatory for most businesses. Although 99% of VAT returns are filed online, only around 12% are currently filed via software. The majority of returns are therefore (presumably) manually entered onto the government gateway page and submitted to HMRC- requiring manual input and intervention. Under MTD, businesses will not be able to keep manual records.

Currently, spreadsheets are commonly used – not only to maintain records, but also to convert the information from accounting software into the VAT return figures. MTD requires spreadsheets to interact directly with software. Overcoming these issues may be challenging for businesses.

MTD applies for VAT return periods commencing on or after 1 April 2019. This is the same time that the UK will leave the EU. VAT is likely to be significantly impacted by Brexit, particularly in relation to the VAT treatment of transactions between the UK and EU.

Summary

By April 2019, businesses will need to:

  • Understand the tax-technical changes to the UK/EU VAT rules; and
  • Ensure that their accounting systems and processes can deal with such changes correctly.

These changes will need to be implemented via the new reporting requirements of MTD. Early planning and preparation will be the key to a successful transition.

How can we help?

We recommend that businesses and landlords, especially those using paper records or spreadsheets, consider some of the cloud accounting packages available such as Xero or QuickBooks.  These will be good solutions for dealing with MTD and bring other benefits to the business. We are happy to run through the options, and to arrange an appointment please contact your local office and a member of the specialist cloud accountancy team will be delighted to give you more details on the options available and work out the best solution for you and your business.

MAKING TAX DIGITAL (MTD)

Specialists

Claire Ashley

Senior Business Services Advisor

Gainsborough

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Lisa Walker

Senior Business Services Advisor

Lincoln

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Nick Heawood-Ferriter

Business Services Advisor

Retford

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Oliver Martin

Manager

Sleaford

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MAKING TAX DIGITAL (MTD)

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