Chartered Accountants and Professional Business Advisers

Making Tax Digital

What is it?

Making Tax Digital (MTD) is a government initiative to digitise the tax system to make it easier for individuals and businesses to get their tax right and keep on top of their tax affairs.

It consists of two separate projects:

  1. MTD for individuals; and
  2. MTD for businesses

Individuals and businesses already have access to personalised digital tax accounts and the functionality of these is being enhanced and improved on a regular basis.

The stated aim of the Government is to make the UK’s tax system the most digitally enhanced system in the World to make tax compliance more effective, efficient and easier.

However, it was recognised fairly quickly that the original timetable that had been proposed was attempting to do too much too quickly and as a result the MTD project has been scaled back and deferred.

MTD for individuals is on the back burner with no firm timetable for implementation. However, HMRC is pressing ahead with developing this system and it is possible for taxpayers to volunteer to participate.

In relation to MTD for businesses the corporation tax part of the project is currently on hold to give HMRC time to assess the situation.

What is going ahead is the VAT part of the project and this newsletter summarises what we know so far so you can take steps to understand where your business is, and what the requirements are likely to be in the near future.

We are running a MTD breakfast seminar on the on 11 October between 8am and 9.30am at our London office - please cllick here to find out more and register to attend.

What do we know so far?

Making Tax Digital changes the way you will store and send information to HMRC. Records will have to be kept in digital form and communication with HMRC will be effected via software rather than being a collection of manual and electronic forms as we currently have.

If you keep manual records this will, obviously, have a big impact on the way you will do things but everyone will have to make some changes to the way they keep their records and communicate with HMRC.

VAT

MTD for VAT will be mandatory for VAT periods starting on or after 1 April 2019 but only for businesses in the UK that are registered for VAT and have over £85,000 of taxable supplies.

MTD for VAT has two key requirements:

  1. Keeping business records in digital form; and
  2. Filing VAT returns using software

For many businesses it is likely that the use of accounting software will be sufficient to enable them to meet their MTD obligations and they will either be able to deal with this themselves or ask their accountant to do it for them.

HMRC has been working closely with the software industry and has published a list of the software houses that support MTD here.

However, HMRC recognise that mainstream accounting software may not work for every business and that some may need to use several programs, products or applications linked together in order to be MTD compliant.

In addition HMRC recognise that there are some aspects of VAT that require manipulation of figures outside of the accounting software and will, therefore, allow the use of spreadsheets as part of the digital records of a business.

HMRC will, however, require the linking of these items to be performed digitally so as to minimise the scope for human error.

Filing the standard 9 box VAT return will have to be done using compatible software which is likely to mean using accounting software but we do know that some bridging software and MTD compliant spreadsheets have also been developed.

It had, originally, been envisaged that businesses would get the opportunity to supply more detailed information to HMRC on a voluntary basis but this feature is not yet available.

What do I need to do?

If you are using accounting software – check with your software provider what they are doing about MTD. If you are on a subscription, it is likely you will receive the latest version of whatever software you are on, and if you are with a large provider, it is likely they will be MTD ready. If you purchased your software as a one-off some time ago, it will not be ready for MTD unless you upgrade.

This may also be a good time to look around at other providers as many businesses are moving to cloud accounting solutions for the many benefits this brings.

If you are not using accounting software – there are lots of software providers out there to choose from and we can help you select the right one. Most cloud providers are especially appealing for a small business as you can pay a modest monthly subscription rather than a one off cost.

There are many advantages to keeping your records up to date in accounting software, as it lets you see how your business is really doing. Modern software can take the burden out of some aspects of record keeping, automatically linking with your bank account and matching money received with what you are owed, and letting you enter expenses by taking a picture of the receipt with you ‘phone

Shipleys have partnered with Xero a cloud based software package that makes it easy to comply with MTD’s requirements. We also work with many other software packages. We can either take on your book keeping for you, or simply get you set up and running with it so you can do it yourself.

Please get in touch if you would like more information.

Need more help? Please contact us at advice@shipleys.com or +44 (0)20 7312 0000