Making Tax Digital. Are you ready?
It is exactly one month today until Making Tax Digital (MTD) comes into effect. From 1st April you will need to have the necessary provisions in place to make sure you are ready. Considering the clock is ticking there still seems to be a lot of confusion around what MTD means and who it is for, so here are some of the common questions we have heard raised in many of the MTD sessions we have attended and hopefully some answers that will help you gain some clarity.
What is MTD?
MTD is the new initiative from HMRC for VAT returns to be submitted to them digitally from 1st April. They are not making any changes to when you need to submit a return or what needs to be included it is just to the way that you submit that information to them.
At the moment MTD only applies to VAT, however, there are suggestions that HMRC will look at using the same system for Income and Corporation Tax from April 2020, so if even if you are not VAT registered or are below the threshold for MTD now you may be affected by changes in the future.
Does everyone need to be ready for MTD?
Put simply no!
If you are VAT registered business with a turnover of more than the current threshold, or an expected turnover of more than the current threshold (£85,000) at this date you will need to register for MTD and make sure you are compliant.
If you are VAT registered and you do not meet this threshold then you do not need to register, however, advice from HMRC is that you should still consider using this new process.
What information do I need to keep digitally?
MTD only applies to your VAT return. You do not need to keep digital copies of all of your sales or purchase invoices and receipts – some software will support that but it is personal preference. As long as the right information is kept and used for the VAT return using the right software you can keep using your current methods.
When and how do I register?
You will not automatically become registered – you will have to sign up and there is a video online to help you to do that.
You can register whenever you want to but from that point on all of your VAT returns will need to filed digitally so don’t register if you’re not ready and set up to do that.
You do not need to register by the 1st April unless you want to and are ready to. MTD starts for your first full VAT period commencing on or after 1 April 2019. E.g. if your quarter ends on 31st March you will submit your VAT return by 7th May but this does not need to be through MTD, your return for quarter April – June will need to be submitted via MTD and you will need to register ahead of the return date.
What software should I use?
If you are already using digital accounting software then you should check with your provider that they support MTD and that your version of software is compatible – the majority will have made provisions.
If you’re not already using digital software or the software you are using does not support MTD you will need to consider what you are going to use and get this set up so that you are ready for your first MTD return.
If you use spreadsheets some of the software available will let you send HMRC Vat returns and there are options for bridging software.
You can find a list of available software here: https://www.tax.service.gov.uk/making-tax-digital-software
I’m still confused what should I do?
You’re not alone if you’re still confused! There is lots of help on the gov.uk website but if you are worried, we would recommend speaking with your accountant or bookkeeper if you use one to see what they are doing to prepare.
We have heard a lot of criticism of HMRC and the introduction of MTD and we understand why, the implementation of digitised systems if you’re not already using them can be costly and create more work in the short-term. However, our personal view is that this isn’t just about being prepared for MTD for VAT and we’re embracing the change. We believe that keeping records on a digital platform will bring with it many positives for your business – you will be able to access information more quickly, get more accurate reporting at a point in time and who knows it might save you money with your accountant if they don’t have to sift through a lot of boxes of receipts!