Making Tax Digital (MTD) is the most fundamental change to the administration of the tax system for at least 20 years.
The essential elements for businesses and organisations are:
- Paper records will no longer be sufficient: It will become mandatory for almost all businesses and landlords (self-employed, partnerships, limited companies and others) to use software or a spreadsheet to keep accounting records. Paper accounting records will cease to meet the requirements of tax law.
- Quarterly reporting: There will be a requirement to submit VAT returns and income tax updates to HMRC (quarterly and annual), directly from software.
As your accountants we will support you through these changes and provide the ongoing services that you need. However, the changes are so fundamental that it will be necessary to review your current record keeping systems and to reconsider what work you decide to do yourself and which activities you wish to include in the service we provide.
When does it start?
VAT: For compulsorily VAT registered businesses – it begins from April 2019.
For voluntarily registered businesses (whose turnover is currently below the VAT threshold) – you will not be required to keep digital accounting records or to file your VAT returns using MTD compliant software until 2020 or later. However, you do need to monitor your annual turnover each month, as if it increases to above £85,000 you will be required to comply with MTD for VAT rules. The current online VAT return will not meet the MTD requirements but will continue to be available until at least Spring 2020. Pilots of MTD for VAT have started.
Income Tax (self-employed, partnerships, trusts and landlords who compete self-assessment tax returns): MTD is expected to become mandatory for income tax reporting, but not before 2020. Pilots of MTD for income tax have started.
Corporation Tax (limited companies): The timings for MTD for corporation tax have yet to be confirmed but it will not become mandatory before April 2020.
What are the exemptions?
- There are exemptions for those who are not able to engage digitally for religious reasons or due to a factor such as age, disability or location (e.g., no availability of broadband). These exemptions are the same as the current exemptions for VAT online filing.
- VAT registered businesses with turnover of less than the VAT threshold (i.e., businesses who have registered voluntarily) will be exempt from MTD VAT reporting but this exemption may be removed from 2020 or later.
- When MTD for income tax becomes mandatory there will be an exemption for businesses and landlords with a very small turnover; the level of this exemption has not been set.
What do I need to do now?
We need to discuss your transition to MTD, so please contact Lucy or Sid at firstname.lastname@example.org
For compulsory VAT registered business – this should be now.
For others – although there is no firm date for when you will be required to comply there are advantages to digitalisation and the transition to MTD will be much smoother for those that are keeping electronic accounting records.
- We may need to consider the possibility of a digital exclusion exemption.
- If you currently use accounting software it will need to be upgraded. If you are considering acquiring software or joining the pilot, please discuss this with us first.
- If you currently maintain records on a spreadsheet you will need to acquire software which will allow returns and updates to be made directly from the spreadsheets or engage us to do this work.
- If you currently maintain records on paper your processes will need to change. You will need to provide records to us promptly after each quarter-end and engage us to do the bookkeeping quarterly and annual reporting, or acquire and use appropriate software.
Where can I get further information about these changes?
Contact us to discuss MTD or look at the HMRC website and the ICAEW website to get a general overview of the situation.
Here is a simple HMRC video about MTD for VAT
* Provided by the ICAEW