Making Tax Digital – what are the implications for you?

Making Tax Digital (MTD) is a key part of the Government’s plans to make it easier for businesses to get their tax right and keep on top of their tax affairs. Keeping digital records and providing updates to HM Revenue & Customs (HMRC) directly will help reduce errors, cost, uncertainty and worry. Whether you agree is another matter! In this blog, we cover the who, when, what and how of MTD.

Who does it affect?

The first deadline is rapidly approaching and will affect all businesses with UK taxable turnover above the VAT threshold, which is currently £85,000. This includes unincorporated businesses:

  • Trusts
  • Companies
  • Non-UK businesses with a UK VAT registration
  • Landlords (e.g. with Options to Tax)
  • Charities/trading subsidiaries

A potential stumbling block is that the legislation refers to taxable turnover above the VAT threshold. This means that you may be voluntarily registered but are exempt from MTD. If you are in this situation you’ll need to carefully monitor your turnover because if you exceed the filing threshold that exemption ceases. You can elect not to be exempt and this might be a sensible course so that you don’t incur any penalties.

There are a few other exemptions, but their scope is quite limited:

  • Religious beliefs
  • In a formal insolvency procedure
  • Not reasonably practicable – for reasons of disability, age, remoteness of location or any other valid reason.
When does it start?

For existing registrations, in the first VAT return period commencing on or after 1 April 2019. For new registrations, it starts from day one, if compulsorily VAT registered.

It’s not currently clear, but it’s being suggested that voluntarily VAT registered businesses will need to file from April 2020.

What will I need to do?

You will be required to:

  • Keep digital records – these will need to be kept in a particular manner and capture particular elements of information.
  • File VAT returns via ‘functional compatible software’.
How do I submit my information?

At present, VAT returns are submitted with information contained in Boxes 1 to 9; there is no underlying information submitted to HMRC to support those figures. After MTD, the underlying details will be available to HMRC in digital format (upon request), which will enable them to scrutinise the data in a way that has never been possible before.

The digital record keeping will contain a permanent date, transaction date and the VAT account. The electronic account must be kept and maintained using functional compatible software, which must take the form approved by HMRC. This could include spreadsheets, providing there is linking software to provide the required information.

Time is getting short and at present, there are only three approved software solutions available to businesses published on the HMRC list; Absolute, Forbes and Rhino! Not exactly household names, but we are assured that many are currently undergoing testing and should appear in due course. Needless to say, there are ‘sceptics’ and ‘doom and gloom’ merchants who are predicting that it will not happen on time, and they may be right, but nonetheless, we all need to plan so that we can comply.

If you’re not already prepared, please speak to your usual MHA Carpenter Box adviser or contact our tax team on 01903 234094.