HMRC has now published a VAT Notice setting out who needs to follow the Making Tax Digital (MTD) rules, what and how records need to be kept and how VAT returns need to be submitted in the new digital age. There are no surprises in the Notice, but it does reinforce that MTD is coming and that all VAT registered businesses – and VAT registered landlords – need to consider their position to ensure compliance.
What is Making Tax Digital?
MTD is part of the Government’s plan to become one of the most digitally advanced tax administrations in the world.
MTD for VAT is the first step on this path and requires VAT registered businesses with a turnover above the VAT registration threshold to keep their records in a digital format and to file their VAT returns electronically using their own software.
Who has to follow the Making Tax Digital rules?
If your turnover is above the VAT registration threshold – currently £85,000 and likely to remain so until 2020 – you must follow the rules set out in the VAT Notice.
If your turnover subsequently falls below the threshold, you will still need to follow the MTD rules, unless you deregister from VAT, or meet other exemption criteria.
Unless you meet one of the exemption criteria set out in the Notice, only businesses with taxable turnover that has never exceeded the VAT registration threshold will be exempt from MTD.
In terms of the exemption criteria, these apply to businesses run entirely by practicing members of a religious society with incompatible beliefs, and in circumstances where it is not practical for you to use digital tools, for example due to age, disability, remoteness of location and others.
When do the Making Tax Digital rules start?
The MTD rules apply from your first VAT period starting on or after 1 April 2019.
For example, a business that submits a quarterly return covering the period 1 March 2019 to 31 May 2019 will need to comply with MTD rules for the period starting 1 June 2019.
Is this really anything new?
In short, yes, and HMRC will impose penalties if you get it wrong or fail to comply.
Many businesses already maintain their records digitally using their own software, but under MTD that is only the starting point; the MTD rules require data from those records to be transferred to HMRC digitally and without further manual intervention, and your software must also be capable of receiving information back from HMRC.
Effectively, MTD requires a continuous digital link between the financial records of your business and the data submitted within your VAT return, so it will no longer be possible to, say, maintain details of transactions in a spreadsheet then manually copy this into a different piece of software to file your VAT return.
Is digital or cloud accounting really that important?
Yes, but it’s not all about MTD compliance.
We are currently working with our clients to ensure MTD-compliance and to ensure our clients are comfortable with and able to thrive in the world of digital accounting.
But for us its more important than MTD. The transition to digital accounting should contribute to a more streamlined approach to business finance giving us the opportunity to invest more time with our clients on a consultative approach, advising clients and their businesses rather than spending time on tax compliance.
Need further information or assistance?
Please get in touch with your usual contact at Ryecroft Glenton.