Our business guide to Making Tax Digital – are you ready?

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Our business guide to Making Tax Digital – are you ready?

MTD-tax-digital

You may have already heard of the ‘Making Tax Digital’ initiative, but do you know what it means for business and what needs to happen? Find our what you need to know with our Marden & Co MTD update…

Making Tax Digital (MTD) was first announced by the Government in 2015. The initiative is designed to streamline the UK tax system by improving transparency and thereby reducing it’s complexity.

The plan is ambitious and was set to revolutionise the UK tax system by 2020 through the introduction of digital record-keeping and quarterly updating for businesses, the self-employed and landlords for income tax self-assessments. VAT and Corporation Tax.

MTD was set on a timeline for introduction in a phased manner between 2018-19 and 2020-21 tax years but in July 2017 following industry consultation, the Government announced that it would delay the proposed introduction until April 2019, and when introduced at that time would apply to VAT only. Further to successful implementation for VAT, all other tax liabilities would be folder into the scheme by 2020 at the earliest.

So, what is required under MTD and how will the initiative affect businesses?

What are the reasons behind MTD?

The government plans to implement MTD to reduce tax errors, which at the moment carries mistakes in the system costing over £9bn a year. The scheme will also give businesses the ability to ‘know where they stand’ in relation to their tax affairs through the ability to access their tax information in a single place, online. It also provides the ability to work on accounts collaboratively with agents, and therefore be able to plan and budget effectively.

Such benefits are intended to allow businesses greater control over their financial affairs. The Government maintains the benefits of MTD will help them to remain competitive, boost productivity and provide cost and time efficiency through digital improvements.

What will change for businesses under MTD?

VAT

Businesses registered for VAT and that have a turnover above the VAT threshold of £85,000 will be required to keep digital records for VAT (and submit VAT returns to HMRC via MTD compatible software (at Marden & Co we are Xero Parners, a fully MTD compliant software).

Businesses will need to retain the following as digital records:

  • Business name, principle place of business and VAT registration number (to also include the VAT accounting scheme used by the business)
  • The VAT account showing the audit trail between primary records and the VAT return
  • Details about supplies made and received

Businesses will need to submit their VAT returns using compatible software, which will pull information from the digital records and digital records will need to be preserved for up to six years.

Should a business need to make amendments to their VAT return, the existing error correction rules apply. This involves correcting non-deliberate errors on the next VAT return (errors must be within the four-year limit). Errors that do not fall into this category should be recorded through the submission of a form ‘VAT652’.

Corporation tax

MTD for corporation tax will not come into effect until 2020 at the earliest. HMRC has said that the scope of the initiative will not be widened outside of VAT until the system ‘has been shown to work’ and to provide sufficient time to test the system fully. But why wait until the last minute – Marden & Co are already a Xero Certified Silver Partner after all.

Self-employed and landlords

VAT-registered businesses and landlords with income above the £85,000 VAT threshold will need to report for VAT purposes only from April 2019.

Voluntary participation

HMRC expects early adoption of the MTD scheme as businesses seek to make the required compliancy changes. From April 2019 all businesses can participate, on a voluntary basis.

Businesses will also be able to submit VAT data on a more frequent basis than mandated. Voluntary updates submitted outside of the VAT return cycle could be used in situations where a business wishes to notify HMRC of a change in circumstances.

Exemptions

Exemptions from MTD for VAT will apply to a number of businesses. These include businesses that are unable to use electronic communications because or religious beliefs; insolvent businesses; and businesses that are unable to submit returns electronically because of disability, age or remoteness of location. 

Costs

As with every fundamental change, business will face one-off and ongoing costs in order to transition to the MTD scheme. Software and IT compliance are obvious (including bridging software for MTD compatible spreadsheets) but also possible costs from accountants or agents to support the transition to MTD, as well as staff training.

As Marden & Co are already working with Xero software as a Certified Silver Partner, we are in a perfect position to hand-hold through implementation of MTD within your company.

Software

Software is key to a successful MTD transition. Businesses must employ software that is able to connect to HMRC systems via an Application Programming Interface (API) in order to comply fully with MTD. As such, the software must be able to:

  • Keep digital records in accordance to MTD regulations
  • Preserve digital records in line with MTD regulations
  • Create a VAT return with digital information held by the software and digitally send this information to HMRC
  • Provide VAT data on a voluntary basis to HMRC
  • Receive information from HMRC via the API platform with regard to an entity’s compliance with obligations under MTD regulations
  • HMRC started a limited pilot for VAT in 2017. The pilot is due to expand in spring 2018.

Penalties and interest

As to avoid a messy and over punitive transition for businesses, HMRC has consulted on the approach to possible penalties. It is likely to be a points system with taxpayers receiving a point every time they fail to submit on time. The model is likely to be introduced for VAT in 2020 once taxpayers in the April 2019 intake have become familiar with the system.

What next?

Maybe it’s time to give us a call? We are ready to get your business set for launch and avoid any discrepancy or fine. With our Xero Certified Silver Partnership we have the ability to migrate your accounting systems and practices ready for full compliancy. Straightforward, no jargon accountancy from Marden & Co – get in touch today for a free consultation on what you need to do to prepare via info@mardenandco.co.uk or call us on 01737 851761.

Let’s Make Tax Digital in partnership!