Making Tax Digital checklist: How to ensure you’re ready for MTD

Published · 5 min read

As of 1 April 2019, VAT-registered businesses in the UK will need to submit their VAT returns using “functional compatible software”, as part of HMRC’s Making Tax Digital (MTD) plans. With the deadline approaching, we’ve created a Making Tax Digital checklist to help you.

One key thing to remember is that from April 2019, if your VATable turnover is above the VAT threshold (currently £85,000) then it will no longer be possible to submit VAT returns manually via HMRC’s website. It must be done via software.

This is a big change and businesses need to prepare now.

Making Tax Digital checklist

This Making Tax Digital checklist will help you:

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If your business is VAT-registered, with a turnover above the VAT threshold (currently £85,000) then Making Tax Digital for VAT will be required within your business.

If your business is not VAT-registered but is approaching the VAT threshold then it will be worth you understanding the MTD for VAT requirements and possibly seeking the advice of an accountant to help prepare.

If your business is new and/or growing, you might find yourself affected by MTD for VAT and you should attempt to project your income for the remaining business period to see if you qualify.

Making Tax Digital is about more than merely filing your VAT return digitally — you’re also required to store some of your VAT information digitally (digital record keeping) and if you use more than one piece of software to store your VAT information and do you VAT return, they must be “digitally linked.” You might need to start preparing for these requirements well in advance.

The next question to consider is “how much impact there will be?”.

If you’re already using accounting software, the transition might be relatively straightforward and could involve little more than taking advantage of feature updates. However, if you’re using older software, this might not be the case and you should check you have “functional compatible software.”

If you’re using spreadsheets or other manual records to prepare your VAT return then you need to consider ways to replace that existing process with a software-driven approach for recording VAT details and filing VAT returns.

Some businesses can claim exemption from MTD for VAT if individuals concerned have religious beliefs incompatible with the requirements, or their age, disability or remoteness mean it’s not reasonably practical for them to use digital tools. Insolvency procedures also affect MTD for VAT. You should get in touch with HMRC via its VAT Helpline for more information and to arrange alternative measures.

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You should look at all your processes that revolve around generating your VAT return. This might be time-consuming but the investment here is well worth it to avoid penalties later on. Here are some examples:

  • How do you raise sales invoices?
  • How do you capture expenses?
  • Do you use a cash accounting scheme, or invoice-based?
  • What other areas of your VAT accounting are still paper-based or exist outside of your accounting software?

For example, while Making Tax Digital for VAT doesn’t mean you should no longer create paper-based notes or invoices, it does mean some of the invoice-level data has to be transferred into your MTD-compatible software at some point. You can no longer simply update your accounting software with the monthly total of all invoices.

If you have access to an accountant, you might find it beneficial to speak to them about these issues and potentially use their experience to review your existing processes for efficiency.

If your business uses an alternative VAT scheme such as the Flat Rate, Retail or Margin Scheme (including the Tour Operators Margin Scheme)—or group VAT—then your requirements and processes will be different.

Getting ready for Making Tax Digital now will save you a lot of time and hassle
Getting ready for Making Tax Digital now will save you a lot of time and hassle

You’ll need to use software that’s compatible with HMRC’s Making Tax Digital programme. In addition to keeping digital records relating to your VAT, the software should be able to communicate with HMRC’s computers so you can file your VAT returns. This is sometimes referred to in technical language as “connecting to HMRC’s APIs.”

If you’re using desktop accounting software (this is installed on your computer and data is stored there – which can make data sharing harder) then you will probably need to update it for MTD, if you haven’t already. You should speak to your software vendor immediately about this.

Some older software might never be updated, so you may have to transfer your VAT accounting (at least) to more modern software to be able to file returns when MTD for VAT comes into effect.

If you’re using a cloud accounting software package (where data is saved on an external server and you can access it in real time on any device – computer, mobile phone, tablet) then it should update automatically for MTD, although again you may wish to speak to your software vendor for details of how to access the functionality.

If you keep your VAT records using a spreadsheet then it might be possible to use MTD-compatible bridging software to file returns but the process will not be as inherently robust or intuitive as using accounting software.

HMRC provides a list of software suppliers who are developing MTD-compatible software. Notably, this doesn’t mean all the software from the listed suppliers will be MTD-compatible and you should enquire with the supplier directly.

Despite rumours to the contrary, and despite the fact that MTD for VAT is legally mandated (and enforced with fines for failing to comply), HMRC will not be making any free end-user software available for MTD for VAT, or offering any software by other means, such as subscription. Functional compatible software must be acquired by businesses from third parties.

It’s possible to switch now to the Making Tax Digital for VAT programme, providing your accounting software vendor has signed up to the beta programme (HMRC maintains a list of vendors, although this doesn’t necessarily mean all software packages from each vendor are MTD-compatible).

Your accountant may have suggested you hold back before switching to MTD for VAT. This was probably because there was still a chance the government might adjust the MTD for VAT specifications or deadline. However, in recent months the government has published VAT Notice 700/22, covering MTD for VAT. Therefore, there can be no doubt MTD for VAT will be implemented in April 2019.

The advice from most experts is to switch to MTD for VAT as soon as possible for a number of reasons.

The first is that there simply isn’t much time left until the Making Tax Digital for VAT deadline in April 2019. And if you have to update your existing internal financial processes or keep alternative records, there might be unforeseen issues that starting as soon as possible will uncover before they become critical.

Secondly, millions of businesses are impacted by the switch to MTD for VAT and, as of April 2019, there will be a massive and potentially unsustainable congestion as they all attempt to switch to MTD for VAT.

For example, in the lead-up to that date, the helpline of your software vendor will very likely become busy, as will HMRC’s helpline. By switching your business early, you might avoid this crunch.

Thirdly, if you intend to use an accountant to help you switch to MTD for VAT then the time leading up to the April 2019 implementation date is among their busiest periods, with the self-assessment deadline occurring at the end of January, for example.

Additionally, you won’t be their only client adopting MTD for VAT, and again that April 2019 crunch time will likely affect them as much as anybody.

Fourth, the above points about an accountant’s time also apply to your software vendor, and if you need training for the new functionality in the software then it’s likely this will become increasingly difficult to book into as the Making Tax Digital for VAT deadline approaches in April 2019.

So, switching your accounting processes to MTD for VAT as soon as possible not only makes sense but should be considered mandatory.

Has your business started preparing for Making Tax Digital for VAT and if not, have you got plans in place to do so yet? Let us know in the comments below.

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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