From April 2019, all VAT-registered businesses will be required to comply with the rules outlined in the government’s new scheme, Making Tax Digital (MTD). As the name suggests, the scheme will require businesses to file and pay taxes online, as well as keeping comprehensive digital records.
In time, all businesses will be a part of the MTD scheme, but VAT is currently the only type of tax that has a confirmed roll-out date. If your business is VAT-registered, it is essential to being preparations in earnest if you haven’t already; and even if you aren’t VAT-registered, it’s worth reading up on what will be required as soon as possible. The government has made it clear that digital record-keeping is crucial for businesses in the UK, and the impacts of the scheme are sure to be wide-reaching: it’s estimated that over £600 million in extra revenue will be generated via MTD due to the reduction in tax errors.
What About the Recent MTD Guidance?
Over the summer, HMRC published guidance on MTD for VAT which clarified many of the ambiguities around the scheme. Three key resources were published on its website: VAT Notice 700/22; Making Tax Digital for Business – Stakeholder Communications Pack; and Software Suppliers Supporting Making Tax Digital for VAT.
- VAT Notice 700/22. This resource covers – in some detail – how MTD for VAT will work in practice for businesses and accountants, and highlights some key rules.
- Software Suppliers Supporting MTD. A very helpful list of software companies that have been approved by HMRC. In order to be deemed compatible with the scheme, suppliers will have submitted a version of their software to HMRC (prototype or published version).
- Stakeholder Communications Pack. This is mainly aimed at professionals handling MTD – accountants, for instance – and can be shared with clients to explain the new scheme.
Will MTD Affect My Business?
If you are VAT-registered – and your turnover meets the VAT threshold – then yes, MTD will apply from 1st April 2019.
Do not wait until 1st April to work on compliance, however. If you are likely to fall within the VAT threshold and do not currently keep digital records, you should update your processes immediately. Getting into the habit of managing finances digitally sooner rather than later – documenting and recording all transactions via an HMRC-approved software – will help ensure that you are compliant when the time comes.
Will VAT Filing Dates Change as a Result of MTD?
No. Whether your business files returns quarterly, monthly, or even weekly (which is sometimes typical for large businesses), MTD will have no impact on filing dates – it simply requires that the process is now conducted digitally and that relevant items are documented and preserved via approved digital software.
My Business is VAT-Registered. What Do I Need to Do?
Within the new resources published by HMRC over the summer an updated timetable could be found. On 16th October 2018, HMRC launched a pilot for a new online VAT service, inviting more than half a million businesses to try it ahead of the official MTD launch in April 2019. HMRC have also confirmed that a small number of businesses with complex arrangements will be given more time to prepare for MTD.
Most companies, however, will need to work towards the April deadline. If your business is VAT-registered and has a turnover exceeding the VAT threshold, you will need to:
- Keep digital VAT records. VAT Notices 700/21 and 700/22 have details of exactly what must be recorded digitally; however, if you’re making the transition to digital record-keeping in the near future, we highly recommend seeking the advice of an IBISS & Co chartered accountant to ensure that your methods are compliant with the new scheme.
- Work with MTD-compatible software and utilise this to send digital returns to HMRC.
- The MTD rules should be followed from the date of the first VAT period that starts on/after 1st April 2019.
Bear in mind that if you’re making these changes for VAT, it’s strongly advised that you switch all processes to the same digital software, because MTD is almost guaranteed to apply to other forms of tax (such as corporation tax) from 2020 onwards.
Can I File Returns Online Via the HMRC Website?
No. Though the aim of MTD is to bring tax ‘online’ generally, HMRC’s website cannot be used to manually submit forms. Paper forms can also no longer be filed. Instead, eligible individuals and businesses will need to submit their returns to HMRC digitally utilising compatible software.
This blog is part of a series that aims to address common queries around Making Tax Digital. Please sign up to our mailing list and follow us on Facebook, Twitter or LinkedIn to be notified when the next article is published (and to keep up to date with all our news!).