Making Tax Digital [MTD] is HMRC’s move to digitise tax. 

From April 2019, VAT-registered businesses and organisations with turnover above the VAT threshold of £85,000 will have to start keeping digital records and submit their VAT returns to HMRC using MTD compliant accounting software such as Xero. MTD will will be compulsory for all other businesses and individuals from April 2020.

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WHO WILL MTD AFFECT FIRST?

From April 2019, MTD will be compulsory for all VAT registered businesses and organisations with turnover above the VAT threshold of £85,000.

This includes unincorporated businesses, partnerships, companies,, trusts, non-UK businesses registered for UK VAT and charities.

MTD will affect tax submissions for all other businesses and individuals from April 2020, so now is a good time to update your tax record keeping and submission processes.

MAKING TAX DIGITAL [MTD]

From April 2019, VAT registered businesses and organisations with taxable turnover above the VAT threshold of £85,000 will be required to:

  1. Maintain their accounting records digitally in a software product such as Xero. Maintaining paper records will cease to meet the legal requirements in tax legislation.
  2. Submit their VAT returns to HMRC using a functional compatible software product that can access HMRC’s API (Application Program Interfaces) platform. The relevant VAT return data should be digitally linked so that transaction can be traced from source (i.e. purchase/sales ledger) through to VAT return completion.

DIGITAL RECORD KEEPING

The requirement to keep digital records does not mean that businesses will have to scan and store invoices and receipts digitally. Businesses can continue to keep documents in paper form if they prefer but each individual transaction (not summaries) will need to be recorded and stored digitally.

PENALTIES

HMRC has published proposed penalties for late submissions and payments under Making Tax Digital.

Although the details are yet to be finalised, it is understood late filing will attract penalty points, which will accrue on the basis of how late the filing is and how many filings have been submitted late. After four late submissions, a penalty will be charged for each late submission.

This is in addition to the existing penalties for late payment.

INTRODUCTORY MEETING

CONTACT US TO ARRANGE AN INTRODUCTORY MEETING, OR FOR A QUOTE.

SUDHIR RAWAL

Partner


Sudhir manages the firms award winning Business Support Department which provides outsourced accountancy services to UK and international companies and is an expert in Xero accounting software and an keen exponent of cloud accounting.

RICHARD COLLIER

VAT Director


Richard has advised on business structuring, complex technical VAT matters, and is frequently involved in representing clients in their often complex and contentious disputes with HMRC, helping many clients achieve very positive outcomes.

ARE YOU READY FOR MTD?

✔ ALREADY MTD COMPLIANT

✔ ALREADY MTD COMPLIANT

Businesses and organisations using accounting software such as Xero or other compatible software are already MTD compliant and do not need to take further action.

✘ NOT MTD COMPLIANT

✘ NOT MTD COMPLIANT

Businesses and organisations keeping their accounting records offline, on spreadsheets, or other non MTD compliant software must take action by April 2019. Contact us for further advice.

MTD SOFTWARE

Xero is an HMRC-recognised VAT software provider and makes online submissions easy with simple, accurate tracking for any VAT scheme.

We offer Xero training in London and throughout the UK for businesses to get the most out of Xero, setup for MTD, and take advantage of add-on’s such as Receipt Bank, Chaser and Workflow Max.

MTD QUESTIONS

What is Making Tax Digital [MTD]?

Making Tax Digital [MTD] is HMRC’s move to digitise tax. From businesses will have to start keeping digital records and submit VAT returns online using compliant accounting software. Read an introduction to Making Tax Digital on the HMRC website.

What is MTD for VAT?

MTD for VAT is the first stage of MTD. Starting 1 April 2019, all VAT-registered businesses with turnover above the VAT threshold (currently £85,000) must maintain digital records and submit their VAT returns to HMRC through online accounting software, such as Xero.

How will MTD impact my business?

This is your opportunity to streamline your accounting and business management. Keeping records and filing tax digitally gives you the chance to regularly check income, expenses and profit in your business – which will help you to make better decisions.

Do I have to maintain all records digitally?

Although HMRC has confirmed the requirements to keep digital records, you can continue to maintain paper documents if you prefer. However, each individual transaction (not summaries) will need to be recorded and stored digitally.

Can I file my returns manually through the HMRC portal?

No, unless your taxable turnover is below £85,000. From April 2019, businesses subject to MTD must submit their VAT returns using accounting software such as Xero or other compatible software.

Penalties

HMRC has published proposed penalties for late submissions and payments under Making Tax Digital. Although the details are yet to be finalised, it is understood late filing will attract penalty points, which will accrue on the basis of how late the filing is and how many filings have been submitted late. After four late submissions, a penalty will be charged for each late submission. This is in addition to the existing penalties for late payment.

What happens after March 2020?

HMRC’s plan is to digitalise the UK tax system starting with MTD for VAT. Other areas of MTD such as income tax and corporation tax, have been put on hold until April 2020 at the earliest.

Further information

HMRC has published a VAT Notice – VAT Notice 700/22 Making Tax Digital for VAT – with complete details about MTD for VAT, including several examples and scenarios. We’ve also created useful content to help you throughout the transition.