By now you will have seen an exhausting amount of adverts concerning HM Revenue and Custom’s ‘Making Tax Digital’ (MTD). First announced in the 2015 Budget, MTD is the government’s aim of achieving the most digitally advanced tax system in the world and has been constantly evolving it since its announcement. Below is a brief guide on the changes you may see now and in the future.
The idea is that business owners will no longer be able to manually pay tax and submit VAT returns manually via pen, paper and post – a process that HMRC says causes over £9bn worth of tax to be “lost” every year due to human error. By human error, HMRC mean inputting figures manually through your Government Gateway account.
HMRC estimate that MTD will contribute over £1bn to the Exchequer by 2022/23.
From April 2018, the government began live testing of the system which allowed some small business owners to keep online records of their income and expenditure for Income Tax purposes, and send quarterly updates to HMRC via their payment software or app. HMRC requires online records to be kept in ‘functional compatible software’, of which there are many available. IMFCoult & Co are an official Xero Partner and can offer a discounted monthly price to clients, and we would encourage you to contact us for further information on this.
From 01 April 2019, MTD now forces new and current VAT registered businesses* to keep VAT records online, and to provide their VAT return information to HMRC through compatible software, such as Xero.
However, businesses that may presently keep their records in a cashbook, offline spreadsheet or non-MTD-compliant software, will need to make the biggest changes as the ability to log in to HMRC’s website and manually input the VAT return figures will eventually be removed for businesses with a turnover greater than the VAT registration threshold, currently £85,000, and HMRC will require a live digital link (or ‘bridge’) to your input data to be in place so VAT figures cannot be changed. This does not mean that HMRC can look at your spreadsheet or wherever you hold your data, instead they just have a live link to the exact cell that your gross, net and VAT figures are calculated and displayed.
You don’t need to wait for Making Tax Digital to apply to your business; you can voluntarily comply with Making Tax Digital for VAT if you wish. There are advantages to getting ahead, particularly if you have to change your bookkeeping processes and need time to get to grips with new software.
Changing software mid-way through an accounting period can be messy and isn’t recommended, so it’s best to plan ahead for Making Tax Digital. Don’t leave it until the last minute!
*MTD for VAT is not mandatory where turnover is below the VAT registration limit, currently £85,000 per annum.