What the HMRC Making Tax Digital letters mean for your business

Published · 4 min read

Have you received a letter from HMRC about Making Tax Digital? If you have, you’re not alone.

Approximately 200,000 HMRC Making Tax Digital letters are being issued to businesses to let them know about the new service and how VAT record keeping and the way that VAT returns are submitted will change from April 2019.

HMRC has sent the first 20,000 letters to businesses and more will be going out soon. Therefore if your business hasn’t received a letter yet, that’s not to say it won’t.

Read this article to find out about the benefits of Making Tax Digital, what HMRC’s letters mean for you, what the public beta phase of the Making Tax Digital VAT pilot is, what the letters say (especially if you’ve not received one) and what steps you should take next.

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Why Making Tax Digital will benefit your business

Making Tax Digital is one of the most important changes to UK businesses ever. Not only will it help to reduce errors when it comes to dealing with business admin, it will enhance productivity for your company too. Spending less time on admin so you can build your business is important – by moving to digital accounting, businesses can save an average of £17,000 / 27.6 days per year.

Why has my business received a letter?

If your business has received one of the HMRC Making Tax Digital letters, you will need to change the way you submit your VAT. The contents will provide you with an overview of Making Tax Digital, why it’s happening and what you need to do to join the service.

In the words of one of the letters from HMRC: “We are changing how businesses need to keep their VAT records and submit their VAT returns. This new service is known as Making Tax Digital.”

As a recipient of one of the letters, it also means you’re eligible to join the Making Tax Digital VAT pilot (see “What is the public beta phase of the Making Tax Digital VAT pilot?” below).

What does the letter (and Making Tax Digital) mean for me?

It means that from 1 April 2019, the way you keep your records and submit VAT returns will change. From that date, HMRC will require your business to keep records digitally, while the submission of VAT data will need to be done via functional compatible software.

However, you don’t have to wait until that date to join the scheme – you can make the change now by joining the public beta phase of the Making Tax Digital VAT pilot.

What happens if I’ve not received a letter?

HMRC will be sending out more letters to businesses, so there’s a chance you will receive one. However, there are a number of exemptions and deferrals for MTD for VAT to be aware of too.

What is the public beta phase of the Making Tax Digital VAT pilot?

The public beta phase of the MTD VAT pilot was launched by HMRC in October 2018. It was opened to approximately half a million businesses that were found to have met the initial eligibility criteria and will be required to use the service from April 2019.

By signing up for the pilot, your business will have the chance to get used to the new service and start testing it too. It will also help HMRC to trial the service and make sure it’s in working order ahead of 1 April 2019. At Sage, we have several products in the public beta and have already supported successful submissions on the new platform.

According to Theresa Middleton, director, Making Tax Digital for Business Programme, in a press release announcing the launch of the public beta: “The pilot is open to sole traders and companies (except those which are part of a VAT group or VAT Division) provided they are up to date with their VAT and have not incurred a default surcharge in the last 24 months.

“Those who trade with the EU, are based overseas, submit annually, make payments on account, use the VAT Flat Rate Scheme, and those newly registered for VAT that have not previously submitted a VAT return, are unable to join at this point.”

Making Tax Digital: A guide for businesses

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What do the HMRC Making Tax Digital letters say?

Two versions of the letters have been sent out by HMRC so it can monitor the effectiveness of the messaging. This means if your business has received a letter, you are unlikely to have seen the other version. We’ve added a summary of both letters below for you.

HMRC Making Tax Digital letters: Version 1

The way you send us VAT information is changing – find out what it means for you

This letter highlights the need for business to change the way they keep their VAT records and submit VAT returns as part of Making Tax Digital. It talks about the need for VAT registered businesses to use the new service if their annual taxable turnover is about the VAT threshold, which is currently £85,000.

It says businesses can make the switch to MTD now and will need to keep digital records using software or a combination of software packages or spreadsheets. Software that works with Making Tax Digital will be required for submitting returns.

The letter goes on to highlight the benefits of going digital and offers next steps, with links to gov.uk.

HMRC Making Tax Digital letters: Version 2

We are modernising the VAT system – get your business ready now

This is shorter that the first letter and highlights the need for eligible VAT registered businesses to keep digital records and use software to submit VAT returns from 1 April 2019. It encourages those businesses to act now to get ready for Making Tax Digital, and start using software to keep VAT records.

This letter also features a couple of next steps for businesses, including talking to an accountant about signing up to the scheme and going to gov.uk for more information.

Next steps

To help you with your preparations for Making Tax Digital, we’ve created an MTD Hub, which has answers to questions you may have about the new service and you can sign up for MTD webinars too to guide you along the way. There is also information on making sure you have the right software, so you are ready to manage and submit your VAT records in the correct way.

We’ve put together a Making Tax Digital checklist, so you can make sure you’re ticking all the right boxes with your preparations – it includes a timeline from HMRC to keep you on track. Also, read this article providing an overview of what MTD means for businesses and take a look at the answers to some common Making Tax Digital queries.

Finally, you can participate in HMRC’s public beta – this will help your business in its preparations and will aid HMRC ahead of April 2019.

Remember, it pays to prepare your business for Making Tax Digital now as April 2019 isn’t a long time away.

Editor’s note: This article was updated on 9 November to summarise the letters rather than publish them in full, so to not jeopardise the monitoring of them at the request of HMRC.

Making Tax Digital: A guide for businesses

Not sure what Making Tax Digital is and how it will impact your business from April 2019? Download this free guide to find out what you need to do to prepare for it.

Get your free guide

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