The notion of Making Tax Digital (MTD) was initially introduced back in 2015 by the government, with the intention of improving the UK tax system by making it more straight-forward and omitting the risk of errors which can occur within the current one.
MTD will transform the UK tax system by implementing the requirement for digital recording keeping and quarterly updating for businesses, the self-employed and landlords with reference to income tax self-assessments, value-added tax and corporation tax.
After some debate over the ‘phased introduction’, the government are currently planning to make MTD law by 2020.
Basically to improve tax accuracy. An astonishing £9bn per annum is lost due to tax errors and miscalculations. By Making Tax Digital businesses will be self-sufficient when managing their accounts and will have easy access to their tax information via online resources – it’s a complete modernisation of how tax information is recorded and submitted to HMRC.
Through the benefits of encouraging businesses to sufficiently monitor their accounts digitally, in one place, through an agent, the government believes businesses will drive performance thus boost productivity and income.
So what’s actually changing?
VAT As of April 2019, all businesses that are registered for VAT and have a turnover above the VAT registration threshold of £85,000 will be obliged to keep a digital record for VAT purposes and submit their VAT return to HMRC through MTD compatible software. The reason this needs to be done using compatible software is so the information kept on your digital records can be pulled if required.
These digital records will need to be preserved for up to six years.
Information to be kept on digital records: > Business name, principle place of business and VAT reg number. > The VAT account showing the audit trail between primary records and the VAT return. > Details on supplies made and received. In the event that a business needs to make an amendment to their VAT return, this must be done within four years of submission. Errors that do not fall into this category should be recorded through the submission of form VAT652.
Corporation Tax MTD for corporation tax will not come into force until MTD for VAT “has been shown to work” and the new system has been tested fully. This predicted to be done by 2020 at the earliest.
Voluntary Participation Business not obliged to keep digital records for VAT purposes will still have the option to submit this information voluntarily. IT is predicted that many businesses will opt for the new system even if they are not required to do so by law.
Exemptions Businesses exempt from MTD for VAT are those considered unable to use electronic communications because of religious beliefs, insolvent businesses and businesses that are unable to submit their returns electronically due to disability, age or remoteness of location.
New Systems & Software Within the time before MTD implementation, businesses will be expected to acquire the appropriate software, hardware and agents to support the MTD transition. Other preparations will include the training of staff to be MTD compliant and efficient.
The software used must be able to connect to HMRC systems via an Application Programming Interface (API) and be fully compliant with MTD. The software must: > Keep digital records in accordance to MTD regulations. > Preserve digital records in line with MTD regulations. > Create VAT return with digital information held by the software and digitally send this information to HMRC. > Provide VAT data on a voluntary basis to HMRC. > Receive information from HMRC via the API platform.
Penalties & Fines Penalties and fines will be imposed for failure to comply with the new MTD system. A points-based model with taxpayers receiving a point every time they fail to submit on time will be introduced.
We advise that if you have any concerns about the MTD transition or the software that you will require, then please do not hesitate to contact us on 01724 400 300, and a one our accounting specialists will be than happy to help you.
Tax avoidance and miscalculations cost the tax payer billions a year, MTD aims to put a stop to this.