Making Tax Digital Update

Stewart Davy reports on the latest news from HMRC on this forthcoming change to record keeping and VAT submission requirements.

HMRC’s plans to introduce Making Tax Digital (MTD) for VAT continue, with no significant changes announced at the time of the 29 October 2018 budget. Whilst there will be a six month delay for certain entities, such as VAT Groups, the vast majority of VAT registered businesses with taxable turnover above the VAT registration threshold (currently £85,000 per year) will need to comply with the new rules from the beginning of their first VAT return period commencing on or after 1 April 2019.

The new requirements fall broadly into three sections, namely;

  • The requirement that records are kept digitally, so either within a piece of accounting software or on a spreadsheet (but see below for more on that)
  • The records being kept need to contain a minimum level of detail as set out by HMRC.
  • The records need to be used to compile the VAT return, which is then submitted to HMRC through functionally compatible software (It will no longer be possible to submit your return through the HMRC website by typing the data in online if MTD applies to the business).

If you are already using accounting software, such as Quickbooks or Xero, then the requirement that the records be kept digitally will be met. All the major software providers are in the process of upgrading their software to meet the new requirements, so we fully expect them to be in a position to make the submissions to HMRC when the time comes – if you are in any doubt about whether your software will be able to make the necessary submissions please let us know, as even if it can make direct submissions to HMRC now it does not necessarily mean it will be in a position to make MTD submissions in future as the requirements are changing.

If you are using a spreadsheet then this in itself will meet the digital record keeping requirement but it will not be able to submit the data to HMRC. It is possible to use Bridging Software to make the submissions, but with the changes coming (and the possibility further down the line that HMRC no longer accept spreadsheets as an acceptable form of digital records) this might be a good time to reconsider how you are keeping your records and make the switch to an online accounting package. In addition to more straightforward compliance with MTD, using software also has many other benefits including our ability to access it remotely to assist where necessary and the automation of the more basic data entry through a bank feed and the software’s intuitive analysis functions.

All businesses affected by the new rules will need to consider whether the records they are keeping meet the details of the new requirements. Details of the requirements can be found in VAT notice 700/22, but in most instances this is fairly straightforward if what is being recorded is a record of each sale and purchase. However some businesses, for example those who use the cash accounting scheme or are retailers, may need to consider in more detail about whether they will need to make changes to what is being recorded.

VAT is only the first step in HMRC’s MTD plans, further plans are in place for Income Tax submission to be required on a quarterly basis (though not before April 2020 at the earliest). Therefore rather than being seen as another administrative burden this should be an opportunity for businesses to consider whether they can improve their bookkeeping to make it more efficient and give them better management information. We have already helped businesses transfer from manual records or spreadsheets to accounting packages in preparation for MTD and would be pleased to discuss how the new rules will affect your business and how we could assist you meet your obligations.

If you have any questions regarding this article or anything else about making tax digital , please contact Stewart Davy.