Making Tax Digital

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What is Making Tax Digital?

Making Tax Digital (MTD) is an HMRC initiative designed to make sure the UK tax system is effective, efficient and easier for taxpayers.

Making Tax Digital for business (MTD) begins on 1 April 2019 with MTD for VAT.

From that date, VAT-registered businesses above the threshold of £85k will have to keep digital records and submit VAT returns using compatible software.

Other components of Making Tax Digital, such as income tax and corporation tax, have been placed on hold until April 2020 at the earliest.

How does MTD for VAT affect my business (or my clients) and what will I have to do?

VAT-registered businesses with a taxable turnover above the VAT threshold will need to:

1. Keep and preserve their VAT records digitally
2. Send VAT returns to HMRC using MTD-compatible software (referred to as “functional compatible software” in the VAT Notice).

VAT Notice 700/22 specifies what VAT records must be kept digitally. Additional VAT records are likely to be required (see the previously published VAT Notice 700/21) and these may be kept electronically or in other formats.

The date when you must start keeping digital records and submitting your VAT return to HMRC using MTD-compatible software will vary depending on when your VAT period starts. You must start following the MTD rules from the first day of your first VAT period that starts on or after 1st April 2019. After this date you will no longer be able to manually complete the nine boxes of a paper-based

VAT return, or manually complete your VAT return online at the HMRC VAT portal.

Essentially, most businesses will need to switch to using software for their VAT accounting, at least, although MTD is virtually certain for other types of business taxes, such as corporation tax, from 2020 onwards—so the opportunity should be used to switch to entirely digital accounting via software.

When does MTD for VAT begin?

For most businesses, MTD for VAT is mandated from 1 April 2019. However, for “deferred” businesses—comprising around 3.5% of the total—MTD for VAT begins from October 2019.

Does MTD for VAT apply to my business (or my client’s)?

In simple terms, if your business (or your client’s business if you’re an accountant) is currently VAT-registered with a VAT-eligible turnover then, yes, MTD for VAT will apply.

If you suspect your business or client will soon be within the VAT threshold, then in order to be compliant with MTD for VAT, the business should immediately start to keep VAT records digitally using software to ensure the legal requirement for record keeping and preservation is complied with, if it isn’t already.

Remember that MTD for VAT isn’t just about digitally filing VAT returns. It’s also about keeping and preserving records digitally.

If you need help with Making Tax Digital then be sure to get in touch with our team today for more information.