HM Revenue and Customs (HMRC) is introducing Making Tax Digital for Business (MTDfB) for income tax, corporation tax and VAT, as it looks to make tax administration more effective, efficient and easier for taxpayers.
The first to become mandatory will be VAT, with a date being set for April 2019. A MTDfB pilot was launched in April 2018, and businesses can opt-in to this now, if they wish.
Who is affected?
VAT registered businesses with taxable turnover above the VAT threshold (£85,000 per year) will need to comply with MTDfB from April 2019.
A business includes:
It will be compulsory for every VAT registered business to comply with MTDfB; the current date set for this is April 2020. Businesses operating under the VAT threshold (£85,000 per year) can opt-in to MTDfB from April 2019, if they wish.
What is Making Tax Digital?
MTDfB is the digital recording and storing of business transactions as near to real time as possible. These transactions are then uploaded to HMRC using Application Programming Interface (API) software. This software is your accountancy or bookkeeping program.
Currently, only 12% of VAT returns are submitted to HMRC via third-party software – the other 88% are submitted via HMRC online services. This will no longer be available when MTDfB is compulsory.
Initially, it’s just the VAT records that need to be held digitally, but eventually this will include all income and corporation tax data.
The first VAT return to be affected by MTDfB will be the first VAT quarter starting on, or after, 1 April 2019. So, if your VAT quarter ends are 31 March, 30 June, 30 September and 31 December, your first VAT quarter will be 1 April 2019 to 30 June 2019.
What software will I use?
HMRC will no longer be providing free software under MTDfB. Businesses will either have to buy and use HMRC approved third-party software, or ask their accountant to submit the information to HMRC for them.
Are spreadsheets digital?
HMRC have been asked this question numerous times and the answer is yes – spreadsheets meet the MTDfB requirements.
However, there must be no manual break between the spreadsheet and the submission to HMRC, and it must be able to receive information from HMRC. Therefore there will need to be software that automatically connects the two. However, anyone wanting to continue to use spreadsheets needs to be aware that, as of now, there is no HMRC approved software to do this and it is not clear when such software might become available.
The VAT return frequency, filing deadlines and payment deadlines will not change. The return must be filed and payment made one month and seven days after the VAT quarter end.
There will be penalties for not adhering to the new digital record keeping provisions but for a short period – HMRC has proposed one year – they won’t apply penalties in certain circumstances.
The usual penalty regime for late filing and payments will apply.