Making Tax Digital: The Facts
What is Making Tax Digital?
Making Tax Digital (MTD) is a move by the UK government to introduce a modern streamlined digital tax system that makes it easier for businesses and individuals to keep their tax records up to date and transfer information to HM Revenue & Customs (HMRC). Each business or individual will be assigned their own Digital Tax Account (DTA) which will allow them to check their records and manage information.
- MTD introduces quarterly updates to HMRC detailing your income, expenditure and profit for the quarter to your Digital Tax Account (DTA)
- It is NOT quarterly tax returns. An end of year declaration will need to be completed at the end of the 12 month period which summarises the quarterly submissions.
- MTD will need to be done via accounts software or apps integrated with your Digital Tax Account.
What is my Digital Tax Account (DTA)?
- Your DTA is similar to your online bank account.
- This is a secure area where a business can see all of its tax details in one place and interact with HMRC digitally.
- HMRC started testing individuals Digital Tax Accounts from April 2017, with them being accessible already. For help accessing yours and for information on what it shows, please contact us and one of our MTD experts will be happy to talk you through it.
Who does MTD affect?
The first significant Making Tax Digital (MTD) deadline is getting closer. From 1 April 2019, VAT registered businesses with a turnover above the £85,000 VAT threshold will need to keep records digitally and submit VAT returns to HMRC using MTD compatible software. MTD is being phased in over the coming years – see our key dates below for who it affects and when.
In October 2018, HMRC announced that the pilot is open to sole traders and companies, provided they are up to date with their VAT and have not incurred a default surcharge in the last 24 months.
Six-month deferral for complex businesses
In October 2018 HMRC announced a six-month MTD deferral for a number of organisations with more complex requirements to give them “sufficient time for testing the service” before they are mandated to join.
Around 3.5% of VAT-registered entities will now be mandated into MTD from 1 October 2019 instead of for VAT periods beginning from 1 April 2019. These complex organisations include: trusts, not-for-profit organisations that are not companies (including some charities), VAT divisions, VAT groups, those public sector entities required to provide additional information alongside 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.
What do I need to do to prepare for Making Tax Digital?
Think about your records, are these on software packages that are compatible with digitalisation?
Talk to us, we can help you. We have expertise in the various online accounting packages available and can help train you in their use. We also offer services such as accounting services, VAT services and outsourced bookeeping that can help you to prepare for MTD.
Is anyone exempt?
- Unincorporated businesses with annual sales between £10,000 and the VAT threshold will be given until April 2020 to prepare for MTD.
- Those who are digitally excluded. This is based upon religion, disability, age and remoteness of location. However to be classed as digitally excluded is assessed on a case by case basis.
I already have accounting software, will I need to change?
Major accounting software providers and online accounting providers are preparing their software to be MTD ready. Contact your local Haines Watts office to discuss your current software and whether it will be MTD compliant.
Key dates for MTD
Pilot open to sole traders and companies, provided they are up to date with their VAT and have not incurred a default surcharge in the last 24 months.
For VAT registered businesses with a turnover above the £85,000 VAT threshold – Check that your current software is compliant. If not, start looking now for a new online accounting package. April 2019 is fast approaching and it will take time to implement new software in your business.
All VAT registered businesses (including charities) with a taxable turnover above the VAT threshold (£85,000) are required to keep their VAT business records digitally and send their VAT returns using Making Tax Digital (MTD) compatible software from April 2019.
Complex organisations such as: trusts, not-for-profit organisations that are not companies (including some charities), VAT divisions, VAT groups, those public sector entities required to provide additional information alongside 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 will be required to keep their VAT records digitally.
The remaining VAT registered businesses – those voluntarily VAT registered with VAT-able turnover under £85,000.
Are there any benefits of MTD for my business?
Businesses should see MTD as an opportunity to improve their efficiencies and embrace the digital world – keeping real time information helps you to understand how your business is performing. There are a number of other benefits to small businesses:
- Improved quality of record keeping and safer data if you opt for a cloud accounting solution.
- Less errors, due to less manual entry of data.
- More efficient management of your business finances. All your data will be in one place and up-to-date.
- Less time at the end of the tax year gathering data and knowing how much tax you need to pay throughout the year will help with budgeting and cash flow.
How can Haines Watts help me with Making Tax Digital?
For more information find and contact your local Haines Watts office.
Still got questions or need help on MTD? Find and contact your local Haines Watts office.