Making Tax Digital

MTD – What is it and how will it affect my business?

What does MTD mean?

MTD stands for MAKING TAX DIGITAL – The exchequer loses billions of pounds of revenue each year due to mistakes in taxpayers VAT returns. MTD is modernising the UK tax system by creating a digital service to help businesses get tax right first time.

How VAT returns are being submitted is changing from April 2019. For each business their existing quarterly reporting will stay the same, the deadline for sending returns and how payments are made is not changing. What is changing is the way returns are submitted, this is now required to be in a digital format. Below we have detailed out who this affects and what exactly is changing.

Who is affected?

            Most VAT registered businesses with a turnover of OVER £85k*

            MTD is voluntary for VAT registered businesses with a turnover UNDER £85K

o    What about those businesses UNDER VAT threshold?

§   Not VAT registered businesses are not affected

§   VAT registered businesses but with turnover UNDER £85K, MTD is optional.  (a monthly check on the turnover for the previous 12 months is advised)

Once a business falls under MTD even if the taxable turnover falls below the £85k threshold then the business remains MTD mandated.

What is changing?

Businesses will need to start to use MTD compatible software to create a digital link between business accounts and the HMRC portal. This will mean businesses will need to:

 Maintain information in a digital format, these are

Supplies made

   Time of supply

   Value of supply (net value)

   Rate of VAT charged

Supplies received

   Time of supply

   Value of the supply

   Rate of input tax that will be claimed

 Invoices both sales and purchases must still be kept in either paper or electronic form

            Submit VAT returns – the digital link between VAT records and the return submitted to HMRC must be through API (application programming interface) enabled software

             Business name, principle place of business, VAT registration and VAT accounting scheme used must also be stored in the enabled API software.

MTD requires a digital link between business software and HMRC. This therefore means no manual intervention or re-typing of information from one product to another and no copy and pasting.

What isn’t changing?

            Box 9 to be completed for a VAT return

           VAT frequency and payment deadlines

           Eligibility for VAT schemes

What about specific VAT schemes?

             Retail schemes – Retailers will be able to record gross daily takings (not weekly, monthly or quarterly) rather than each individual transaction. This means that there does not need to be a digital link between tills and the accounting records; recording the daily totals in the digital accounting records meets the requirements. Many businesses are using a retail scheme without understanding that they are doing so.

             Flat rate schemes – The flat rate scheme will continue and digital records of supplies received will not be required (unless they relate to capital items which cost more than £2,000 including VAT).

             Margin schemes – The additional records required for margin schemes and the calculation of the marginal VAT charged do not need to be kept in digital form. These records must still be maintained in some format.

 *HMRC has deferred the introduction of MTD for VAT for a small minority (circa 3.5%) of businesses that have more complex requirements until 1st Oct 2019.  These include trusts, ‘not for profit’ organisations that are not set up as a company, VAT divisions, VAT groups and those required to make payments on account and annual accounting scheme users. HMRC have written letters which include formal legal notification of the deferral of the start date and any business that wishes the deferral to apply must ensure that they receive the letter and should retain it carefully. A deferred business that does not receive a letter should contact the VAT helpline

MTD for Income tax and Corporation tax is on hold until at least April 2020. HMRC have yet to announce any further details.

How can we help?

Bookkeeping Synergy can help with a smooth transition into digital tax by seamlessly moving your existing accounts to a cloud-based system and giving your business the peace of mind that you are MTD compliant as well as a full range of other services on offer.