What exactly is Making Tax Digital and why is it happening?
Making Tax Digital (MTD) is a government initiative that sets out a bold vision for a digital tax system and ultimately bring an end to self-assessment. Making it easier for individuals and businesses to keep on top of their affairs and get tax right.
HMRC’s main aim of MTD is to make tax administrations more effective, more efficient and easier for taxpayers, through the implementation of a fully digitalised tax system.
How will Making Tax Digital affect me?
MTD will impact businesses and individuals alike. To sum up, you will be required to send a summary of your income and expenditure once a quarter via your digital tax account, using Functional Compatible Software.
What is Functional Compatible Software?
This Functional Compatible Software in which VAT information is recorded can be a number of software programs, products, applications or spreadsheets. These all have to be digitally linked together, hence ‘functionally compatible.’ To clarify, a digital link is a digital or electronic transfer. It can also be an exchange of data between software programs, products or applications. HMRC have advised that copy and pasting data from one place to another does not constitute a digital link. However, HMRC have advised that using digital links between software to transfer data won’t be compulsory until VAT periods beginning on or after 1st April 2020. This is helpful but we do recommend getting used to the new changes sooner rather than later. So by the time April 2020 comes around, all our clients should be old hands.
What software should I use?
There will certainly be many suppliers offering MTD software already on the market. Of course, we will be recommending Xero as our first choice of software. If you are already a Xero user, you should have little difficulty once MTD comes into effect. However, if you have not already begun to use Xero, we will be happy to assist you with converting your records and getting you firmly on your way to being MTD compliant well in advance of April 2019.
What will I have to do with regards to Making Tax Digital?
You must start keeping your business records digitally. If you already use software to keep your business records, check with your software provider what their plans are. If you don’t use software just now, or your software won’t be MTD-compatible, then you’ll need to consider what software is most suitable for you.
When is Making Tax Digital happening?
MTD will come into effect 1st April 2019.
Will any financial support be available?
HMRC is working very closely with the software industry to ensure the availability of a wide range of products for businesses at a variety of different price points. There are no plans for HMRC to offer its own software products, but the market will likely be very competitive with software available at low cost to businesses.
Will Making Tax Digital make anything easier?
Definitely. Submitting your VAT returns should be far less stressful under MTD. Keeping your records digitally will mean far less unnecessary paperwork as you or your tax advisor need only check the data and update to HMRC when necessary. Digital data will also mean greater visibility and ease of access regarding your tax situation.
What are the proposed penalties for non-compliance?
Points are given for every late report. Once the amount of points breaches a threshold (which can vary per MTD obligations), a penalty will be charged. Points can expire if the taxpayer complies for a period of time after the penalty. And HMRC do have the discretion to not apply points, for instance, once the code fails. Over time, this penalty points system will extend to different taxes and duties including corporation tax, because the government intends to bring corporation tax within the scope of MTD from 2020.
Is anyone exempt from Making Tax Digital?
Yes. HMRC recognise that not everyone will be able to keep digital records. For instance, if a business is run entirely by members of a religious society whose beliefs are incompatible with the requirements of MTD (e.g. use of computers), they may be exempted. Furthermore, if it is not reasonably practical for you to keep digital records for reasons of age, disability, remoteness of location or any other reason, you could be exempt. If you think this may apply to you, contact the VAT helpline (0300 200 3700). HMRC will also be offering digital assistance if a full exemption is not applicable.
What is my Digital Tax Account (DTA)?
A Digital Tax Account for all will mean that customers can see the information that HMRC holds and will be able to check at any time that their details are complete and correct. HMRC will use this information to tailor the service it provides, according to each persons’ individual circumstances.
What initial steps do I need to take to make sure I’m ready for MTD?
Begin to keep your records in digital format, well in advance of April 2019. The earlier you start, the more time you have to get used to the new way of doing things. Make sure you get into the habit of getting your records to us in good time, so we can complete and submit your VAT return on our approved software. Always ensure that you are asking for help. Our dedicated team will be on hand at every step to offer guidance and assistance for all things MTD.