The April deadline for Making Tax Digital has passed, so we all need to use a software programme compatible with HMRC.
Making Tax Digital will help bring the tax system into the 21st century by providing businesses with a modern, streamlined system to keep their tax records and provide information to HMRC.
Significantly, the roll-out for Making Tax Digital was amended last year to ensure businesses have plenty of time to adapt to the changes.
Under the current timetable:
– Only businesses with a turnover above the VAT threshold (currently £85,000) will have to keep digital records and only for VAT purposes.
– They will only need to do so from 2019.
– Businesses will not be asked to keep digital records, or to update HMRC quarterly, for other taxes until at least 2020.
Making Tax Digital is available on a voluntary basis for the smallest businesses, and for other taxes.
This means that businesses and landlords with a turnover below the VAT threshold will be able to choose when to move to the new digital system.
As VAT already requires quarterly returns, no business will need to provide information to HMRC more regularly during this initial phase than they do now.
All businesses and landlords will have at least two years to adapt to the changes before being asked to keep digital records for other taxes.
HMRC intends to run a live pilot of the new system in Spring 2018. This will allow for more than a year of testing before any businesses are mandated to use the system.
The Finance Bill will be introduced as soon as possible after the summer recess. This will legislate for all policies that were included in the pre-election Finance Bill, raising over £16 billion across the next five years to fund our vital public services.
The government has also re-confirmed that all policies originally announced to start from April 2017 will be effective from that date.
Better use of information
Ministers believe that Making Tax Digital presents significant benefits for businesses. It will mean that they will not have to give HMRC information that it already has, or that it is able to get from elsewhere – for instance from employers, banks, building societies and other government departments.
Digital tax accounts for all will mean that customers can see the information that HMRC holds and be able to check at any time that their details are complete and correct. HMRC will use this information to tailor the service it provides, according to each of our customers’ individual circumstances.
Tax in real time
Businesses should not have to wait until the end of the year or longer to know how much tax they should pay. HMRC will collect and process information affecting tax as close to real time as possible, to help prevent errors and stop tax due or repayments owed building up.
A single financial account
At the moment most taxpayers cannot see a single picture of their liabilities and entitlements in one place – but this is changing. By 2020, businesses will be able to see a comprehensive financial picture in their digital account, just like they can with online banking.
As your accountants, we will be able to interact with HMRC digitally and at a time to suit them. They already have access to a digital account which will present them with an increasingly personalised picture of their tax affairs, along with prompts, advice and support through webchat and secure messaging. Digital record keeping software will be linked directly to HMRC systems, allowing customers to send and receive information directly from their software.
Making Tax Digital for VAT
From April 2019 all VAT registered businesses with a taxable turnover above the VAT threshold of £85,000 will be required to:
- Maintain their accounting records digitally in a software package or on a spreadsheet. Paper records will no longer meet the legal requirements in tax legislation.
- Submit their VAT returns to HMRC using MTD compatible software that can interact with HMRC’s API platform.
The API (Application Program Interface) is a way of digitally communicating your VAT information with the Revenue. You will need this to submit your VAT returns to them and they will also need to be able to send information back to you.
If you are a VAT registered business with a turnover above £85,000 then you must comply with the new MTD for VAT rules from the first complete VAT quarter after 1st April 2019. This means that your accounting and VAT records must be kept digitally.
HMRC is compiling a list of compatible software that is continuing to grow. If you would like advice on suitable software for your business then please contact us without delay so you can prepare in plenty of time.
The new requirement is that you record all of your VAT records digitally. There is no requirement to record extra information or to save digital copies of your receipts or invoices at this time but will most likely become a requirement in the near future.
There will be no changes to the underlying VAT rules or the current filing and payment deadlines for VAT. They won’t be changing the amount of information required to be submitted either, the VAT return will remain the same 9 boxes that you already submit.
If you would like to talk to us about your MTD for VAT requirements please get in touch.
MTD Pilot Opens to All
The Making Tax Digital (MTD) pilot has been opened up to all businesses that will be mandated from April 2019 (i.e., the first VAT accounting period starting on or after 1 April 2019) to use compatible software to submit information directly to HMRC.
The pilot was opened at the end of 2018 to partnerships and VAT Flat Rate Scheme (FRS) users, and the following entities are now also able to join:
– EU traders
– businesses who file monthly VAT returns
– businesses that use non-standard VAT accounting periods
– businesses that are not up-to-date with their VAT returns
– newly registered businesses who have not previously used their VAT online account to submit a return
– groups (group can now join the MTD for VAT pilot although the mandatory start date for group registrations is 1 October 2019).
Interestingly, HMRC have noted that, as at 10 January 2019, more than 3,500 businesses had joined the pilot. However, the number of businesses that will be required to join from April 2019 is approximately 1.1m, meaning there is still plenty to be done before the final ‘go live’ date.
The deadline mandatory filing under MTD will be different for many businesses, depending on when they file their VAT returns. Businesses (or their agent on their behalf) need to be using MTD for VAT:
– Only after they have filed all their non-MTD VAT returns (which may not be until 7 August, 7 September or 7 October 2019 for quarterly filers).
– Only when they have acquired an MTD compatible software product
– If they pay by direct debit, not within the 15 working days before the submission date and the five working days immediately after it.
This can give quite a short timeframe, particularly for businesses that file monthly returns.
The ICAEW Tax Faculty has received reports of unexpected rejections of applications to sign up for the pilot, but this is expected to improve following the relaxation of the eligibility criteria. Any business or agent that encounters a problem during the sign up process is advised to use the ‘Get help with this page’ link on the relevant screen. This will raise a ticket with HMRC’s helpdesk who will get in touch to resolve the issue (i.e., it is a way to get specific help rather than just a way of raising a general issue with a gov.uk page).
For more information about accounting software please read this article by Vincent & Co team member Matt Rook here
May 2019 Making Tax Digital Update:
HMRC has published an updated version of their guidance for businesses on Making Tax Digital for VAT. In particular, the guidance now includes information on how businesses should deal with petty cash transactions.
Petty cash is traditionally a small amount of cash on hand that covers day to day expenses of a business, such as buying a pint of milk. In some businesses it can be used to describe costs that are not attributable to an individual account in their records. Requiring businesses to record each of these transactions in digital records could be an unreasonable administrative burden for businesses. Therefore, HMRC will accept that a number of petty cash transactions can be recorded as a single purchase in the digital records of the business, subject to a monetary limit.
HMRC confirm that the following rule has the force of law:
Where a business uses petty cash to pay for small value items, these do not need to be individually recorded in the digital records. The business can record the total value and the total input tax allowable. This applies to individual purchases with a VAT-inclusive value below £50 and the total value of petty cash transactions recorded in this way cannot exceed a VAT-inclusive value of £500 per entry.
Regarding other areas, HMRC guidance on the turnover test, following the rules when you’re exempt, digital links, supplies made by third party agents and supplies received has been updated, and new guidance on the use of supplier statements and charity fundraising events has been added.
The guidance can be found on the GOV.uk website at https://www.gov.uk/government/publications/vat-notice-70022-making-tax-digital-for-vat
If you need more advice about VAT, business tax efficiency or Making Tax Digital call Vincent & Co on 01803 500500