Introduction

Making tax digital or MTD is UK government initiative to digitise the way tax is administered by HMRC. MTD aims to bring ease to the process of managing taxes for individuals and businesses. This would not only help businesses to stay on top of their tax affairs but also create a digital link between the transactional processing, recording keeping and tax returns submission to HMRC.

What is Changing?

Currently, businesses can choose to keep their records either manually or digitally and then submit various kinds tax returns using a commercial software or using the HMRC online system. However, from 1 April 2019, this would change. During the first phase of MTD implementation, HMRC would require VAT registered businesses to prepare and submit their VAT returns using a MTD-enabled Software. Legally speaking, HMRC has issued a VAT Notice which makes the 1 April 2019 as official date when MTC comes into effect.

Summary of Key Changes:

Some of the key changes that will come into effect on 1 April 2019 are as below:

  • Businesses with turnover of £85,000 or over – current VAT threshold – will be affected by the initial MTD changes.
  • There will be no immediate requirement for Businesses to keep digital records and file other tax returns such as Corporation Tax return until April 2020. Further details concerning this shall be potentially issued by HMRC in a due course.
  • Some businesses with not-so-straight-forward business affairs  have been given the extra time until October 2019 to join the MTD for VAT filing.

What are the new Requirements under MTD?

Brief summary of the new requirements are as below:

• Businesses will be expected to maintain digital business records

• VAT returns shall be filed using the MTD-enabled software.

  • There is no requirement to keep the digital records in onc centralised digital location.
  • Digital link is mandatory between different digital systems or software used for record keeping and VAT filing.
  • Complying with MTD is a legal requirement and hence businesses don’t have the option of opting out of it.

What records are required to be kept Digitally?

There is nothing significant that is changing in terms of what records shall be kept in our view. It is rather a transition from manual to Digital and from scattered records to a more connected and centralised system of business record keeping.

The following records must be kept digitally via the digital system (if you use one) and MTD-enabled software:

  •  Designatory data:
  •  Business name.
  •  Address of your principle place of business.
  •  VAT registration number.
  •  A record of any VAT accounting schemes used.

When you make Sales:

The time of supply.

The value of the supply (Net excluding VAT).

The rate of VAT charged.

When you make a business Purchase:

The time of supply.

The value of the supply.

The amount of input tax that you will claim.

VAT Return Summary or Filing Data:

  • Total value of output tax due
  • Total value of output tax due on acquisitions from
  • other EU member states.
  • The tax payable on behalf of your supplier under a reverse charge procedure.
  • The tax that needs to be paid following a correction or error adjustment.
  • The input tax claimable from business purchases.
  • The input tax allowable on acquisitions from other EU member states.
  • The tax reclaimable following a correction or error adjustment.
  • Misc. adjustments (VAT related).

How will my business be affected?

There are number of changes that would occur after the implementation of MTD. Most vitally, all businesses within the scope of MTD as of 1 April 2019 should ensure that they are using a MTD-enabled software for digital record keeping and VAT Filing. Any businesses that are currently using manual or excel based accounting system shall review switching over to a digital platform.

HMRC has compiled a list of MTD-enabled software for businesses. You can access it here to check if your existing software is on the list or to choose a suitable solution for your business.

At UGS Accountants, we offer specialised advice and support to new and developing small businesses to meet the new MTD requirements. We have extensive experience in using MTD-enabled software such as Xero, Sage one Cloud and FreeAgent and our advisors can help your business set up your VAT records on MTD-enabled software. We recognise the importance of how different each business and its needs can be. For this reason, we proactively work with you to make the structuring of business, preparation of your accounts, bookkeeping, VAT and tax return a highly beneficial process, not merely a statutory one.