Making Tax Digital
Making Tax Digital is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their accounts.
HMRC’s plan is to become one of the most digitally advanced tax administrations in the world.
MTD is making fundamental changes to the way the tax system works, making tax administration so that it is:
- more effective
- more efficient
- easier for taxpayers to get their tax right
Making Tax Digital for VAT
The pilot service is open to around half a million businesses whose affairs are up to date and are straightforward.
They will extend to most other business types over the coming months.
VAT-registered businesses with a taxable turnover above the VAT threshold of £85,000 are required to use the Making Tax Digital service to keep records digitally and use software to submit their VAT returns from 1 April 2019.
The exception to this is a small minority of VAT-registered businesses with more complex requirements.
As part of planning for the VAT pilot, HMRC continued to engage with stakeholders and listen to their concerns about business readiness for Making Tax Digital.
They have made the decision to delay mandation for these customers until 1 October 2019 to ensure there is sufficient time to test the service with them in the pilot before they are mandated to join.
See the timeline below.
Making Tax Digital for VAT timeline
Open to sole traders and companies (except those which are part of a VAT group or VAT Division) provided they are up to date with their VAT.
Those who trade with the EU, are based overseas, submit annually, make payments on account, use the VAT Flat Rate Scheme, and those newly registered for VAT that have not previously submitted a VAT return, are unable to join at this point.
Those customers with a default surcharge within the last 24 months will be able to join the pilot by the end of October 2018.
Private testing begins with partnerships and those customers that trade with the EU.
Late 2018/early 2019
Open to other sole traders and companies who are not up to date with their VAT, users of the Flat Rate Scheme and businesses newly registered for VAT that have not previously submitted a VAT return.
Open to partnerships and those customers that trade with the EU.
Pilot open for Making Tax Digital customers that have been deferred.
Making Tax Digital mandated for all customers (except those that have been deferred).
Making Tax Digital mandated for customers that have been deferred.
The 6-month deferral applies to customers who fall into one of the following categories: trusts, ‘not for profit’ organisations that are not set up as a company, VAT divisions, VAT groups, those public sector entities required to provide additional information on their VAT return (Government departments, NHS Trusts), local authorities, public corporations, traders based overseas, those required to make payments on account and annual accounting scheme users.
The deferral will apply to around 3.5% of mandated customers.
Some businesses and agents are already keeping digital records and providing updates to HMRC as part of a live pilot to test and develop the Making Tax Digital service for Income Tax.
If you are a self-employed business or landlord you can voluntarily use software to keep records digitally and send Income Tax updates to HMRC instead of filing a Self Assessment tax return.
Helping businesses, self-employed people and landlords get it right first time
The majority of customers want to get their tax right but the latest tax gap figures show that too many find this hard, with avoidable mistakes costing the Exchequer over £9 billion a year.
The improved accuracy that digital records provide, along with the help built into many software products and the fact that information is sent directly to HMRC from the digital records, avoiding transposition errors, will reduce the amount of tax lost to these avoidable errors.
Having listened to concerns about the pace of change, particularly for small businesses, the government announced in July 2017 that the pace of mandation would be slowed and that Making Tax Digital will not be mandated for taxes other than VAT until at least April 2020.
The primary legislation for MTD relating to VAT and Income Tax is contained in the Finance (No.2) Act 2017. This provided certainty about the broad framework in which Making Tax Digital will operate, with secondary legislation for VAT laid in February 2018, coming into force from April 2019.
The government published a VAT notice which explains the rules for Making Tax Digital for VAT and about the digital information that must be kept.
They have also published a communication pack which supports their partnership. Working arrangements with stakeholders, who can use the contents to inform their own communications activity and key messages for their clients, customers or members.
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