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Making Tax Digital

Making Tax Digital (MTD) is an HMRC initiative to move all taxpayers towards digital records. It will start with VAT returns for VAT quarters commencing on or after 1 April 2019. HMRC has agreed to ensure that the VAT changes are working smoothly before looking to roll out the initiative to other taxes.

For VAT, all businesses with turnover above the VAT registration threshold will be required to keep their VAT records digitally and file their VAT return to HMRC through Making Tax Digital compatible software for VAT quarters starting on or after 1 April 2019.

The main changes with MTD for VAT include:

  • Changes to VAT return submissions – all VAT returns will have to be submitted from MTD functional software. Many taxpayers and tax agents currently file VAT returns using the HMRC online portal. This will not be possible for quarters commencing on or after 1 April 2019.
  • Changes to record keeping – businesses will no longer be able to keep only manual records. Records supporting the VAT returns must be stored and maintained in ‘functional compatible software’ i.e. software that can connect to HMRC via an Application Programming Interface (API). In addition, the required digital VAT records must capture more information than is currently required to be recorded. HMRC have confirmed that spreadsheets containing the required digital records may be used but an MTD compliant “bolt on” to the spreadsheet will be needed to make the VAT return filing.
  • April 2019 is not long from now, so there is not too much time for businesses to change how they keep their records and to choose right software. Currently, the list of software suppliers fully supporting MTD is short. However, many others are in the testing phase and will be added to the list in the future.
  • MTD also applies to small businesses using the flat rate scheme (with appropriate modifications to the MTD requirements in relation to expenditure).

The information that will be reported to HMRC with each VAT return filing is not expected to change.

All businesses should review their VAT processes to ensure that they will be able to meet the MTD requirements from 1 April 2019. This is especially relevant to those that do not use accounting software and it should provide an incentive to review bookkeeping and accounting processes in advance of April 2019.

Vizier Ltd has worked with many businesses to implement digital accounting systems which are more efficient and to improve business performance. Please contact us if you would like to discuss this further.