Making Tax Digital

Making Tax Digital

VAT record keeping is changing from 1 April 2019

What exactly is ‘Making Tax Digital’?

What does the term ‘Making Tax Digital’ (MTD) mean?

If a business is registered for VAT, from 1st April 2019 it will be required by HM Revenue & Customs (HMRC) to:

Record all transactions in a digital format.

Submit VAT returns in a digital format to HMRC.

How is digital format defined?

Rather than businesses keeping records manually, the new laws introduced by HMRC mean that all records must be kept on a computerised system. This could be achieved by the use of suitable accounting software packages such as Xero or Quickbooks Online.

Although theoretically Microsoft Excel could be utilised as an appropriate computerised system, there is at present no facility to transmit information from Excel directly to HMRC.  Whilst HMRC may be keen to see users using Excel on a free of charge basis once the necessary interface has been designed, the software industry is unlikely to forgo the opportunity to develop a product that must be purchased.

What happens if I already submit my VAT return online?

A recent survey discovered that although up to 99% of VAT returns are currently submitted online, only 12% of those are generated using accounting software.  The remainder file VAT returns online using the HMRC gateway.

However, under the new Making Tax Digital rules, this option will no longer be possible and all VAT returns will be required to be filed directly using an accounting software package such as Xero, Quickbooks Online and Sage.  Again, at this moment in time, no product or package has been developed which would allow a VAT return to be filed from an Excel spreadsheet using the HMRC gateway

Why have HMRC introduced Making Tax Digital?

There is an £8 billion difference between the amount HMRC forecast they would collect in taxes and the amount they actually received.  This, they believe, can be partly blamed on mistakes, whether deliberate or careless, made by businesses when inputting data.  They believe that the human error factor giving rise to these mistakes would substantially reduce if records were maintained on a computerised system.

What does HMRC hope to achieve?

HMRC intends that all businesses report full accounting details for the purposes of income tax and corporation tax calculations on a quarterly basis rather than once a year as it is at present.  This system of quarterly reporting may, in the near future, also apply to the rental income and expenses reported by landlords.

Could I be exempt?

As far as Making Tax Digital is concerned, HMRC offers very few exemptions and these would only apply to businesses who can genuinely prove they are unable to use computers effectively on the grounds of disability, locations without a reliable internet connection, age or religion.

Such businesses would have to apply to HMRC for assessment for exemption.

How can we help you?

AMG Financial UK Ltd can offer a bespoke digital accounting system to cater for all users of the business, let us take the hassle out of your paper work trail.