What is MTD?
HMRC say that Making Tax Digital 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’s ambition is to become one of the most digitally advanced tax administrations in the world. Making Tax Digital is making fundamental changes to the way the tax system works – transforming tax administration so that it is:
- more effective
- more efficient
- easier for taxpayers to get their tax right
What does it mean?
If you run a VAT-registered business with a taxable turnover above the VAT registration threshold (currently £85,000) you are required to keep digital VAT business records and send returns using Making Tax Digital (MTD)-compatible software.
From April 2019, software that prepares a VAT return to send to HMRC must be MTD-compatible for those mandated to use MTD from this date. This means that it can integrate with HMRC systems to send VAT returns to HMRC.
From April 2020, data must be exchanged digitally between all software used by a business for VAT. The information contained with the MTD VAT return will be generated by pulling information from the digital records. This information will be the 9 boxes required for the VAT return.
In the case of spreadsheets, this means that the software must be capable of taking the relevant information from the spreadsheet electronically and sending it to HMRC.
What is changing?
This change is only to the way you record and submit your VAT.
MTD does not require you to keep additional records for VAT, but to record them digitally.
The deadlines for sending VAT returns and making payments are not changing.
What information do I have to keep digitally?
Your digital records should include, for each supply, the time of supply (tax point), the value of the supply (net excluding VAT) and the rate of VAT charged. They 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.
This means if you have been keeping records manually you will need to use compatible software, this is where Contando and Xero can help.
What is compatible software?
Compatible software is a software product or set of software products that between them support the MTD obligations of keeping digital records and exchanging data digitally with HMRC through the MTD service.
Contando and Xero are Making Tax Digital ready.
When does it start?
For the vast majority of businesses MTD applies from VAT periods starting on or after 1 April 2019. Therefore if your VAT quarter ends February, May, August and November your first submission will be for the quarter starting after 1 April 2019 which is your June, July and August quarter.
Some businesses have until 1 October 2019 to start keeping records digitally and using MTD-compatible software to send their VAT returns to HMRC.
This applies to those that fall into one of the following categories: trusts, ‘not for profit’ organisations that are not set up as a company, VAT divisions, VAT groups, those public sector entities required to provide additional information on their VAT return (such as government departments and NHS Trusts), local authorities, public corporations, traders based overseas, those required to make payments on account and annual accounting scheme users.
Businesses with a taxable turnover below the VAT threshold can also sign up for MTD for VAT voluntarily.
With Xero we are Making Tax Digital ready so you are in safe hands. Each quarter we will prepare your VAT return and submit it using Xero so you don’t need to worry.