What is Making Tax Digital?
Making Tax Digital (MTD) is part of HM Revenue & Customs (HMRC) wider digital strategy to make it easier for individuals, businesses and other organisations to ensure their tax affairs are in order.
From April 2019 all those businesses and organisations that currently complete a VAT Return will be required to complete their VAT returns digitally. The only exemption is those that have voluntarily VAT registered, they can continue making submissions as they currently do, for now, so long as their turnover remains below the VAT threshold, with no requirements for digital records.
Making Tax Digital for VAT is the first step towards HM Revenue Customs (HMRC) digital strategy for income tax and other taxes going forward.
What is the driver for Making Tax Digital?
The driving force behind MTD is the belief within HMRC that taxpayer errors result in a significant proportion of the tax gap, the difference between the tax paid and tax due, and that poor record keeping is a major contributing factor to these errors.
MTD will therefore require businesses, other organisations and individuals to keep their records digitally, using either bookkeeping/accounting software or at the very least on spreadsheets. By doing so, HMRC believe that errors will be reduced and, with them, the tax gap.
Taxpayer errors account for a significant proportion of the UK tax gap; between 2014-2015 over £3.5 billion was lost in revenue due to errors and omissions in VAT returns alone. This resulted in a total cost to the Exchequer of £8 billion.
How can I prepare?
MTD requires individuals, organisations and businesses to keep and maintain records in a digital form.
To comply with requirements software used must be able to:
• Keep records in a digital form
• Preserve digital records in a digital form
• Create a VAT return from the digital records
• Provide HMRC with additional VAT data on a voluntary basis
• Send and receive information from HMRC via the API (Application Programming Interface) platform
The use of spreadsheets, whilst permitted, is not recommended. If used though, they will need to be combined with third party commercial software, using APIs, to ensure a seamless flow of data from the business to HMRC and vice versa.
Does is Making Tax Digital affect Landlords or Charities?
Those with rental income from property will be required to comply with MTD requirements. For jointly owned property, each individual must make a digital record for their share of income and expenditure.
VAT registered Charities must note that they will be required to adopt and comply with MTD. This means that, unless a charity is eligible for the general exemption available to businesses with taxable supplies below the VAT registration threshold, it will be expected to comply with the MTD requirements for VAT from April 2019.
Why do I need to do something now?
According to Ben Halstead, Partner at Streets Chartered Accountants, the best thing you can do is act now.
“April year ends will need to work backwards from April 2019, which takes us to the end of April 2018.
It is important to check if you currently use accounting software that it will comply with requirements, and if you don’t you will need to consider what software you might use. In any event it is important to familiarise yourself with the new reporting process and procedures.
It is important to note that if you currently file your VAT return using the government gateway that you will not be able to do so post April 2019 - you will have to do it using accounting software.
We recommend that businesses and organisations etc that are VAT Registered come along to our FREE MTD Workshop. All delegates will receive a free copy of Streets step by step guide to getting to grips with Making Tax Digital. Their presentation will also include details of the popular accounting solutions for Making Tax Digital which includes Xero, Sage and QuickBooks Online.”
Whether you are a Chamber member or not, this will be an excellent opportunity to network with others facing similar challenges, grow your pool of contacts, and embrace the local business community.
We hope to see you there.