Making Tax Digital
What is Making Tax Digital?
Making Tax Digital (MTD) is a long-term Government initiative to digitise the process of calculating, collecting and reconciling taxes – both commercially and for individuals.
The ultimate ambition for MTD is for the abolition of periodic tax returns as everything will be calculated and therefore payable in real time.
So, for instance, Her Majesty’s Revenue and Customs (HMRC) will be able to see all aspects of a persons income as it will have been reported to them by the various organisations, companies and financial bodies that make and receive the payments. They will then be able to calculate the overall tax position for the individual/company and issue a rebate or bill for the under/over payments.
As you can imagine, this is a major project and will not happen overnight. Key elements of the roll out have already been put back whilst HMRC deals with Brexit preparations/fall out.
At this stage, MTD for VAT is the biggest and most significant change and will primarily affect businesses.
Full details about Making Tax Digital can be found on the HMRC website here
How Does it Affect Me?
The new Making Tax Digital for VAT rules apply to all businesses that are registered for VAT and those that have ever had a taxable income above the VAT threshold i.e. have had to complete a VAT return at any time. There are very few exemptions. The new rules became law on 1st April 2019.
The first phase of MTD requires companies to keep ‘digital’ records and, in particular, digital VAT records. This means that businesses who previously kept manual books or used spreadsheets have to move to a software application to manage their accounts and submit their VAT returns electronically, directly from the application to HMRC.
Businesses will need to be ready to comply with the new rules from the start of their first VAT quarter which commences on or after 1st April 2019.
Businesses below the VAT threshold will not be affected by Making Tax Digital until 2020 at the earliest, but ultimately all companies will be required to keep electronic accounts and submit their statutory reporting to HMRC digitally.
What action do I need to take?
If you have not already moved to keeping digital records or you are about to register for VAT/pass the threshold, you will need to ensure you have compliant systems.
There are lots of software options available on the market. Here at Haggards Crowther we recommend Xero, a cloud based bookkeeping application that allows us to help you with day-to-day recording keeping and managing VAT returns.
If you are unsure whether you are compliant, would simply like assistance with keeping your accounting records or you would like to speak to someone about your own circumstances, please contact a member of the Haggards Crowther team in the first instance.