Making Tax Digital is the UK government’s pioneering initiative to take all tax submission online and to therefore enforce digital record keeping via computer software.
VAT-registered businesses are the first to take part as of April 2019, with other forms of business tax following in 2020 and beyond.
The timeline and goals of Making Tax Digital have changed several times following government review and this guide – based around a series of frequently asked questions – aims to remove any ambiguity for both businesses and accountancy practices.
Beyond a full description of the Making Tax Digital scheme and a helpful business checklist, here are just some of the questions answered within the guide:
- What records do I need to keep as part of Making Tax Digital for VAT?
- How much will it cost businesses to comply with Making Tax Digital for VAT?
- What does this mean for my business?
- Will there be penalties for not complying with Making Tax Digital?
- My business is not VAT registered and I don’t know if I will earn £85,000 this year. What should I do?
Making Tax Digital: A guide for businesses also features advice from entrepreneur and Sage Ambassador Peter Jones, who offers top tips to help your business in its Making Tax Digital preparations.
Making Tax Digital should make it easier for individuals and businesses to get their tax right and keep on top of their affairs as well as transforming HM Revenue and Customs (HMRC) into a world leading, digital tax authority. Ultimately, it will make life easier for everybody.
This guide can help your business or practice ease itself into the process with the minimum of fuss and stress.
Below is an excerpt from the guide.
What is Making Tax Digital?
Making Tax Digital (MTD) is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs, as well as transforming HM Revenue and Customs (HMRC) into a world-leading digital tax authority.
At present, the only legal requirement relating to MTD is the scheme for VAT, which applied to VAT registered businesses from 1 April 2019. Although were rumours this date might change – or that MTD would be cancelled entirely – HMRC issued a VAT Notice, making it fully official.
In summary, the current situation with MTD for businesses is:
- Most businesses with a turnover above the VAT threshold – currently £85,000 – are affected from April 2019, if they pay VAT.
- Businesses will not be asked to keep digital records or update HMRC quarterly for other taxes until at least April 2021. At present HMRC hasn’t shared any further details.
- Niche and more complex businesses or organisations – around 3.5% of the total – have a postponed MTD for VAT start date of October 2019.
The requirements for MTD for VAT are fundamentally simple. HMRC says VAT registered businesses with a taxable turnover above the VAT threshold must:
- Keep records in a digital form.
- File their VAT returns via MTD-enabled software.
HMRC says that while the complete set of digital records to meet MTD requirements don’t all have to held be in one place or program, there must be a digital link between the pieces of software used.
Making Tax Digital for VAT has the force of law and is therefore a mandatory requirement. Outside of a handful of narrow and very unusual circumstances, you can’t opt out of MTD for VAT.
While you might use an accountant to file your VAT on your behalf, you will still need to keep financial records digitally if they pertain to your VAT accounting.
For more useful advice, download your free guide – Making Tax Digital: A guide for businesses.
Editor’s note: This article was first published in July 2018 and has been updated for relevance.