Why is HMRC Making Tax Digital?
According to HMRC £9bn is lost every year as a result of tax calculation mistakes, something that can be mitigated in most cases with the implementation of MTD.
Seeing the necessity to make tax administration more effective, efficient and simple, HMRC are taking steps towards a fully digitalised service that revolutionises tax reporting as we know it today.
What is MTD for VAT?
MTD for VAT is currently at the forefront of the initiative, requiring MTD compliant software to keep digital records and prepare VAT returns. Businesses will no longer be able to upload their records to HMRC’s website manually.
- Business owners will be required to keep digital records of their taxes, using MTD compatible software.
- Rather than submitting digital records directly to HMRC’s website, the requirement will be to submit tax reports via their MTD compliant software.
What is MTD compliant software?
There are two options for choosing software that is compatible with MTD. You can either use one product that does everything, or several different products that are linked together:
- Select from HMRC’s list of software capable of both keeping and submitting tax records. Popular choices are Xero, Sage, FreeAgent, KashFlow and Reckon – all of which integrate with Tide.
OR
- Use a spreadsheet to to keep your tax records alongside a bridging or linking software to upload them.
Who does MTD for VAT apply to?
From April 2019, all registered businesses with a turnover above the VAT threshold (currently £85,000 excluding VAT) must use MTD.
If your business is voluntarily VAT registered, you can choose whether or not to use MTD, if your business is not VAT registered at all you won’t be affected at this stage.
The complete timeline has yet to be set in stone, but it’s expected that from around April 2020 all remaining VAT registered businesses will also be obliged to comply with MTD.
Are there any exemptions?
According to the Chartered Institute of Taxation, you can apply for your business to be registered as officially exempt if it is incompatible with your religious beliefs, disability or remoteness of location. If you think you’re eligible you should contact HMRC as soon as possible.
How do I sign up for MTD?
You can sign up for MTD at GOV.UK. It’s important to note that once you’ve signed up to MTD, you cannot go back and use your old method. Once you’re signed up to MTD you must start using your MTD compliant software to send returns.
What if I don’t comply with MTD?
There will be penalties in place for those who don’t comply with MTD, but it’s likely these won’t be enforced in the initial stages, so don’t panic! HMRC recognise that MTD is a big change for business owners so they’re taking a lenient approach during this transition. If something out of a businesses control goes wrong, HMRC may refrain from inflicting penalties.