Making Tax Digital (MTD)

What is Making Tax Digital (MTD)?

Making Tax Digital or MTD as it more widely known, is part of the government's plan to digitalise the UK tax system. This means that all UK businesses will be required to keep digital records via MTD approved software and submit tax updates to HMRC on a quarterly basis.

What is the timeline for MTD?

Making Tax Digital will come in to force on 1st April 2019 . From this date, all VAT periods starting on or after the 1st April 2019, will need to recorded and submitted to HMRC using MTD approved software.

What does this mean for my small business?

This means that all small businesses who have a turnover above the VAT registration threshold (currently £85,000), will be required to use an approved, MTD compatible software for all of their accounting records and future VAT submissions.

What if i'm registered for VAT voluntarily?

If you are registered for VAT voluntarily, you will not be required to submit your VAT returns using MTD approved software until Phase 2 of the programme begins in April 2020. Should you wish, you can however join the scheme voluntarily before this time.

How do I become MTD ready?

The main consideration for small businesses is to think about your current accounting systems? Are you still using a paper ledger, is your record keeping sporadic, do you struggle for time? If the answer is 'yes'; now is the time to start thinking about changing over to a HMRC approved cloud based software and also considering the services of a bookkeeper to support your business.

Which MTD cloud software solution should I use?

The current list of MTD approved software solutions is growing almost daily. On scanning the names listed, you may or may not recognise some or all of them. The largest companies including Sage, Xero and Quickbooks are listed, and for many businesses, if you are happy with your current supplier it is worth checking if they will be providing MTD approved software. If not, like VT Software, take some time to read through the list and to undertake some trials, alternatively, seek the guidance of an MTD expert. 

I've heard about MTD 'bridging' software, what is this?

HMRC has provided scope for the use of 'bridging' software which will allow spreadsheet users to be MTD compliant, whilst having extra time to move their existing records into a full digital system. The software works by extracting spreadsheet data into an MTD format suitable for submission to HMRC. This system will be allowable under the new MTD rules for a period of 12 months, after which, all  data must be stored and submitted using MTD approved digital software.

What about trials?

Since the announcement of MTD, systems for submitting VAT returns digitally to HMRC have been in development. A number of private 'beta' sessions have taken place and whilst a pool of UK businesses are now taking part in a larger closed public beta, no plans have yet been announced for an open public beta. Many software suppliers are however, offering the opportunity to take part in the trials, just contact your software provider or MTD expert to find out how you can take part and get ahead of the game.

How soon should I start preparing for MTD?

As soon as possible! Migration and learning new systems takes time and before you know it April 2019 will be upon us all. Eligible businesses with a HMRC Agent can also register to take part in the ongoing pilot scheme; this applies to sole traders with income from one business or landlords with properties (excl. furnished holiday lets).

Is there anything else I should know?

Businesses will also need to sign up for a Business Tax Account to be able to send through MTD submissions. If you are not currently registered, you can find out how here.

What else is planned?

MTD for Income Tax is also in the pipeline, with businesses able to sign up voluntarily to submit their self assessment tax returns to HMRC. This will become mandatory from 2020 at the earliest, with development previously pushed back to allow HMRC to concentrate on planning for Brexit.

Where can I find more information?

HMRC has a number of other resources available for businesses who would like to find out more about the MTD changes, this information can be found here.

Ask an Agent

As HMRC Agents, we can also help. We can provide advice and guidance, assist with new software and help with migration from old software to new, as well as introduce you to the MTD pilot scheme, should you wish. 

If you would like a review of your businesses current MTD position, please do not hesitate to contact us fora no obligation consultation on 01395 320316.