AN INTRODUCTION TO MAKING TAX DIGITAL

New Making Tax Digital rules coming

New rules about reporting tax called Making Tax Digital for VAT are being introduced by HMRC and will take effect from April 2019.

What is Making Tax Digital?

The changes, known as MTD for VAT, are being phased in, with the first to be affected being businesses with a taxable turnover above £85,000. These firms will have to keep digital VAT records and submit digital VAT returns too.

Are there exceptions?

Yes. The exception is a small minority of VAT-registered businesses with more complex requirements. HMRC decided to delay the deadline for these customers until 1 October 2019 to ensure there is sufficient time to test the service with them.

What are these exemptions?

You will not have to follow the Making Tax Digital rules where HMRC is satisfied that:

Your business is run entirely by practicing members of a religious society whose beliefs are incompatible with the requirements of the regulations (for example, those religious beliefs prevent them from using computers)
It is not reasonably practicable for you to use digital tools to keep your business records or submit your returns, for reasons of age, disability, remoteness of location or for any other reason
You are subject to an insolvency procedure

These may apply even if you are not currently exempt from online filing for VAT.

Will anything be the same?

Yes. What won't have to change is the kind of information you send to HMRC or when you need to send it. You will, however, need the right kind of software to do it.

What kind of software is that?

A software product or set of products, that support the MTD obligations of keeping digital records and exchanging data digitally with HMRC through the MTD service.

What is the bridging software?

Bridging software is how HMRC describes the digital tool that can take information from other applications, for example, a spreadsheet or an in-house record keeping system and then lets the user send the required information digitally to HMRC in the correct format.

What information needs to be recorded?

The time of supply (tax point), the value of the supply (net excluding VAT) and the rate of VAT charged, business name and principle business address as well as your VAT Registration Number and details of any VAT accounting schemes you use.

What's this about digital records?

Digital records can be kept in a range of compatible digital formats in various places and different software. For example, a spreadsheet can be a component of digital record keeping, provided that the product which consolidates records or summary records from the spreadsheet is digital.

Can you continue to record daily totals?

Yes, but they have to be captured digitally. If you use spreadsheets to keep business records, you'll need MTD-compatible software so that you can send HMRC your quarterly VAT returns and receive information back from HMRC.

What is the next phase?

MTD will not be brought into effect for other taxes, such as income tax and corporation tax, until at least April 2020 but businesses can get involved in the Income Tax pilot now on a voluntary basis. The Government announced this in 2017.

Why is all of this being done?

The Government has said these reforms will make it easier for individuals and businesses to get their tax right and keep on top of their affairs. It's part of plans to overhaul the system and making it one of the best in the world.

More information

For more details visit this dedicated HMRC page here or give us a call.

AN INTRODUCTION TO MAKING TAX DIGITAL

New Making Tax Digital rules coming

​

New rules about reporting tax called Making Tax Digital for VAT are being introduced by HMRC and will take effect from April 2019.

What is Making Tax Digital?

​

The changes, known as MTD for VAT, are being phased in, with the first to be affected being businesses with a taxable turnover above £85,000. These firms will have to keep digital VAT records and submit digital VAT returns too.

Are there exceptions?

​

Yes. The exception is a small minority of VAT-registered businesses with more complex requirements. HMRC decided to delay the deadline for these customers until 1 October 2019 to ensure there is sufficient time to test the service with them.

What are these exemptions?

You will not have to follow the Making Tax Digital rules where HMRC is satisfied that:

Your business is run entirely by practicing members of a religious society whose beliefs are incompatible with the requirements of the regulations (for example, those religious beliefs prevent them from using computers)

It is not reasonably practicable for you to use digital tools to keep your business records or submit your returns, for reasons of age, disability, remoteness of location or for any other reason

You are subject to an insolvency procedure

These may apply even if you are not currently exempt from online filing for VAT.

Will anything be the same?

​

Yes. What won't have to change is the kind of information you send to HMRC or when you need to send it. You will, however, need the right kind of software to do it.

What kind of software is that?

​

A software product or set of products, that support the MTD obligations of keeping digital records and exchanging data digitally with HMRC through the MTD service.

What is the bridging software?

​

Bridging software is how HMRC describes the digital tool that can take information from other applications, for example, a spreadsheet or an in-house record keeping system and then lets the user send the required information digitally to HMRC in the correct format.

What information needs to be recorded?

​

The time of supply (tax point), the value of the supply (net excluding VAT) and the rate of VAT charged, business name and principle business address as well as your VAT Registration Number and details of any VAT accounting schemes you use.

What's this about digital records?

​

Digital records can be kept in a range of compatible digital formats in various places and different software. For example, a spreadsheet can be a component of digital record keeping, provided that the product which consolidates records or summary records from the spreadsheet is digital.

Can you continue to record daily totals?

​

Yes, but they have to be captured digitally. If you use spreadsheets to keep business records, you'll need MTD-compatible software so that you can send HMRC your quarterly VAT returns and receive information back from HMRC.

What is the next phase?

​

MTD will not be brought into effect for other taxes, such as income tax and corporation tax, until at least April 2020 but businesses can get involved in the Income Tax pilot now on a voluntary basis. The Government announced this in 2017.

Why is all of this being done?

​

The Government has said these reforms will make it easier for individuals and businesses to get their tax right and keep on top of their affairs. It's part of plans to overhaul the system and making it one of the best in the world.

More information

​

For more details visit this dedicated HMRC page here or give us a call.