Making Tax Digital - the latest on who, what and when, and what it means for you
Making Tax Digital is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs. HMRC estimate there's over £9 billion a year lost to HMRC because of "avoidable mistakes", and Making Tax Digital (MTD) aims to capture some or most of that money.
VAT-registered businesses with a taxable turnover above the VAT threshold are required to use the Making Tax Digital service to keep records digitally and use software to submit their VAT returns from 1 April 2019. The exception to this is a small minority of VAT-registered businesses with more complex requirements.
What does MTD require a business to do?
If you're VAT registered with a turnover above £85,000 a year, you need to get ready for MTD. MTD requires you to:
- Stop filing VAT through the HMRC portal or any non-MTD software. Once you register for MTD - which you must do before your post-April 1st 2019 VAT return is due - the existing HMRC portal won't be available to you.
- Start filing VAT through some MTD-compliant software. In practice this is probably going to be a cloud-based system - Sage, Quickbooks and Xero are the main ones to use. Please note: Sage desktop won't be compliant; only Sage Business Cloud Accounting, Sage Business Cloud Accounting Start, Sage 50cloud Accounts and Sage 200cloud will link to MTD for submissions.
- Keep records digitally. As long as those records are kept in some digital form, including a spreadsheet, this aspect of the MTD regulations is met. There is no requirement for a business to keep its VAT records in the same software package that it uses to submit the VAT return, although there should be a digital link between the records-recording software and the VAT-submission software. That digital link will be compulsory from 1 April 2020 (1 October 2020 for deferred businesses).
Has the timetable slipped?
In short, no. There was a lot of speculation about whether the government would introduce this scheme so close to Brexit (if it happens at end of March 2019), but the latest from HMRC indicates there's no possibility of slippage, so it's really happening, and it's happening from 1st April 2019.
What's the process?
For clients of Whitehill, there's nothing to do other than be aware that the portal's closing and that you'll need to use Quickbooks if you're used to filing your own VAT return.
If you're on your own as far as VAT is concerned, you'll need to register for MTD. The first businesses to be mandated into MTD are those with VAT periods beginning on 1 April 2019. The business should register with HMRC and then wait until it receives an email from HMRC confirming it has signed up to MTD successfully. From that point on, it must submit VAT returns using MTD- compatible software. The VAT portal currently provided by HMRC will be closed from the time that your registration for MTD is accepted.
Can't I just keep doing what I have always done?
Sorry, no. In fact, the answer has two parts:
- the VAT portal (the current online VAT return form) will be closed to businesses who are required to enter the MTD regime; and
- after the "soft landing" period (which ends April 2020), penalties will be applied if the business doesn’t submit its VAT return on time, and the closure of the portal will not be a reasonable excuse. Even during the "soft landing" period, HMRC may waive penalties only in respect of digital links for any transfer or exchange of data between software programs, products or applications used as functional compatible software.