A quick guide to Making Tax Digital for businesses

Ian Barker 21.03.2019

Research by HMRC indicates that over a quarter of firms that are required to be compliant by April 2019 haven’t even heard of Making Tax Digital. This article explains the plans and what businesses are required to do.

Making Tax Digital for business

As the old phrase goes; “Nothing in life is certain except death and taxes”. Whilst dealing with tax brings dread to many, there are plans from the government to make it easier for businesses and self-employed individuals to get their tax right and make sure their affairs are in order. This is being achieved through various initiatives, a key part being Making Tax Digital (MTD).

Everybody wants to get their tax right, but many find it difficult and consistently make avoidable mistakes. Digital records improve accuracy, whilst the specific software used provides help and prevents transposition errors. HMRC Making Tax Digital is changing the way the system works and transforming tax administration to be more effective and more efficient.

It will only be mandated for VAT and Income Tax until at least April 2020, to ensure businesses can cope with the changes. After that date, MTD will be mandated for other taxes. Here is my guide to what we know so far about Making Tax Digital in the UK.

“Making Tax Digital has pushed the requirement for more sophisticated technology within the profession and has been met on the whole, with a positive outlook. Having a focus on tech and compliance centres means there won't necessarily be the need for the traditional graduate intake to undertake these tasks, and so we could see a shift in recruitment trends with more lateral, experienced hires with pure advisory experience being the focus.”

Making Tax Digital software available

It is important to ensure you have appropriate software in place before you sign up that allows you to submit VAT returns and keep records of sales, or software that lets you send Income Tax updates and keep records of income and expenses.

Not every piece of software is compatible, but you can check which are by using the government’s tool. More pieces of software are in development and you can ask your current provider if they plan on making their software compatible in the near future. There is also bridging software available that helps the transition across to Making Tax Digital.

For VAT

VAT-registered businesses that have a taxable turnover above the VAT threshold of £85K are required to keep their records in a digital format and use software to submit their returns moving forward from the 1st April 2019. The only exceptions to this are those VAT-registered businesses with more complex requirements; they will have until 1st October 2019 so there is sufficient time to test the service. Certain records and accounts must be kept, and preserved, digitally within functional and compatible software.

“Be careful, some records must be kept and preserved in their original form either for VAT purposes or other tax purposes.”

For Income Tax

Some businesses already keep digital records and provide updates to HMRC for income tax as part of a ‘live pilot’ test. Certain people, including landlords or if you are a self-employed business, can voluntarily keep digital business records and send Income Tax updates to HMRC instead of filing a Self Assessment tax return.

Making Tax Digital timeline

By April 2019, it should be mandated for all HMRC customers, apart from those that have been deferred. By October 2019, MTD should be mandated for those customers who were deferred. The deferral applies to customers who fall into either: trusts, ‘not for profit’ organisations that are not set up as a company, VAT divisions, VAT groups, those public sector entities required to provide additional information on their VAT return (Government departments, NHS Trusts), local authorities, public corporations, traders based overseas, those required to make payments on account and annual accounting scheme users.

Prepare for April 2019

As of the start of March, nearly 30,000 businesses had already signed up to the new service. If organisations haven’t done so already, the first step is to identify whether their business is affected by the MTD changes and then talk to your accountant about what they are doing to make returns compliant.

Don’t panic, HMRC recognises that businesses will require time to adjust and have stated that they will take a light touch approach in the first year of mandation. This said, it is expected that businesses show they are doing their best to comply and there is not a ‘no penalties promise’ in place.

Ian Barker's picture
UK Director - Professional Services (Taxation, Audit, Legal)
ibarker@morganmckinley.co.uk

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