Making Tax Digital in a Nutshell

The following sets out the key information surrounding the introduction of HMRC‘s Making Tax Digital (MTD) Plan.

What is MTD?

This is HMRC’s plan to digitise the tax system; it will be the biggest change in UK tax for over 20 years.

What is HMRC’s aim?

To digitise tax administration in the UK so it becomes more effective, more efficient and easier for taxpayers to get their tax right. Many businesses already use online banking and platforms to pay bills, or communicate with their customers or suppliers. Many are already using online accounting packages. Digitising the tax system is a natural progression of this.

Who is affected?

MTD will be rolled out in different phases. Phase 1 will affect VAT registered businesses with a taxable turnover above the VAT threshold (currently £85,000). MTD will apply to VAT return periods that start on or after 1 April 2019, i.e. the VAT quarter ending 30 June 2019. HMRC state that ‘taxable turnover’ includes standard, reduced and zero-rated, but does not include exempt supplies or income outside the scope of VAT. MTD will also apply to businesses that operate the Flat Rate Scheme for VAT.

When does this start?

Phase 1 comes into effect on 1 April 2019.

Who else will be included in this new legislation?

Over the next few years, MTD will also apply to the self-employed, landlords, and businesses paying Corporation Tax not covered elsewhere. In the future, HMRC want to gather all taxes from businesses using the MTD process. The start date for these groups is yet to be confirmed.

Ultimately, individuals will also be affected by MTD. Whilst they will not need to submit tax returns, their income details will be collected from employers, banks etc. Individuals will then be able to confirm their income using the Government’s new online verification system at www.gov.uk.verify.

What are the key changes?

From 1 April 2019, VAT registered businesses will have to keep and maintain their business records in a digital format. They will also need to submit digital VAT records on a quarterly basis to HMRC using only MTD compatible software. Other types of businesses will have to follow suit in due course.

After 1 April 2019, businesses will not be able submit VAT returns using the current HMRC VAT portal.

What is ‘MTD compatible software’?

This is accounting software which allows the digital (online) exchange of your data to and from HMRC’s system. This could also include spreadsheets as long as they are capable of transferring information to and from HMRC’s system digitally using an Application Programming Interface (API).

Are the deadlines for VAT changing?

No. Your current dates for submitting VAT returns and paying VAT bills will remain the same. Similarly, the date for making Income Tax payments is not changing.

What digital records do I need to keep for MTD?

You will not have to keep any additional records other than what you currently keep to calculate and submit your VAT returns. The only change is that you will now have to record all this information digitally.

What MTD compatible software is available?

HMRC have created a list of software suppliers who have created MTD compatible software. This list will be updated as and when new software products become available. The list can be found at www.gov.uk/guidance/software-for-sending-income-tax-updates.

Is HMRC providing free software?

No. Businesses who are affected by MTD will have to pay for any additional software and training needed in order to meet the MTD requirements. However, they will be able to reclaim VAT on these items where applicable.

Are any businesses exempt from MTD?

HMRC may grant exemptions to MTD on the grounds of age, disability, remoteness of location or for other reasons. Businesses run entirely by practising members of religious societies whose beliefs prevent them from using computers may also be exempt.

What are the advantages of MTD?

As a result of transitioning to MTD, businesses will benefit from:

  • having up to date financial records throughout the year, not just after the year-end when the final accounts are prepared
  • improved accuracy of their records as a result of making fewer errors by using MTD compatible software rather than relying on manual calculations
  • developing a better understanding of how the business is performing during the year, enabling them to make better, more timely decisions
  • implementing more proactive tax planning strategies to minimise future tax liabilities
  • having an improved cash flow position due to a better handle on debtors and creditors and knowing how much tax will need to be paid and when

What action do you need to take?

Action Responsibility Deadline Done (Y/N)
1 Confirm if your business meets the criteria for Phase 1 of MTD, i.e. being VAT registered with a turnover above the VAT threshold (currently £85,000).
2 Check if your current method of business record keeping (desktop, Cloud accounting or spreadsheets) will meet the requirements of HMRC’s MTD compatible software.
3 Verify whether your current accounting/bookkeeping method is MTD compatible; talk to your accountant about the options available to you and which MTD package would be most suitable for your business.
4 Decide whether you want to undertake your own bookkeeping activities under MTD or whether to outsource this to your accountant/bookkeeper.
5 Identify what initial and ongoing training and support you and your staff may need to make sure you comply with the MTD rules; your accountant should be able to advise you on this.
6 If you have any further queries about MTD, speak to your accountant.

Home | Contact us | Terms of Business | Accessibility | Disclaimer | Help | Site map |

© 2018 Walker Moyle. All rights reserved. | Walker Moyle is a trading name of Walker Moyle Ltd. Registered in England and Wales No 09173854
Registered Office: Alverton Pavilion, Trewithen Road, Penzance, Cornwall, TR18 4LS

We use cookies on this website, you can find more information about cookies here.
Walker Moyle, Alverton Pavilion, Trewithen Road, Penzance, Cornwall TR18 4LS
Walker Moyle : The Old Post Office, Tregenna Place, St. Ives, Cornwall TR26 1AA
Walker Moyle : 3 Chapel Street, Redruth, Cornwall TR15 2BY