Playing now

Playing now

Making Tax Digital: The basics on HMRC’s move to digitise tax

Back to search results

Making Tax Digital is a key part of HMRC’s move to digitise tax and the way eligible businesses in the UK will submit their VAT returns will change from 1 April 2019. Need help to make the shift and unsure of the benefits of the new programme?

In this interview with the Startup Van team, Moore Accountancy owner Sid Moore talks about Making Tax Digital, what it means for your business and how it will be beneficial, and she covers the steps you need to take to be ready for HMRC’s new scheme that will simplify the tax system.

For those who don’t fully know, explain what Making Tax Digital is, because it’s all coming up now ahead of 1 April.

Making Tax Digital is a big project that HMRC is working on. The highlight at the moment is Making Tax Digital for VAT – and that’s what starts on 1 April. But there are other things that are rolling out over the next few years. Making Tax Digital for income tax and things like that.

It really is a big project that they’re trying to work at.

The easiest way to think about it – I was on a webinar recently and one of my tax lecturers, brilliant lady, gave it quite easily.

Think of it at the moment: you have your office, you have all of your tax information, you throw it into a van, the van drives to HMRC, and it kind of shifts it over the garden fence and it sits on its doorstep.

And at some point, HMRC opens the door, takes it all in and they deal with it. That’s how it works at the moment.

What’s going to happen is it’s going to go from your office, it’s going to have a shuttle bus. And it’s literally going to go all the way from your front door, you shove it in and it drives all the way, through the gate, through the front door and straight to HMRC’s computers.

So it’s a lot more seamless and it works backwards – it goes back and forth.

So the idea is that it reduces inaccuracies, there’s no manual intervention anywhere.

Is this because you’re doing it all yourself online?

Yes, so once you put it in the inputs at the beginning, it’s just going to go straight through to HMRC via a direct link.

So for practical terms, people are running a business and they have to do this themselves, right? What are the benefits? And practically wise, what do they have to do differently this time?

So if you’re doing things manually, using paper – your old quill and paper type of thing – then you really do have to change things because electronically, you won’t be able to send anything to HMRC.

From an HMRC perspective, they are not getting accurate data. There’s too much manual intervention. It could be wrong. You could type a 9 as a 6, a 6 as a 9. You could do 1,000 instead of 100. Things can be wrong. You could be declaring the wrong sales, the wrong information.

Eventually, you could be paying the wrong tax.

And is that from their end inputting it wrong? Because if they’re getting it from paper that you’re sending out to them, they might upload it wrong.

They might upload it wrong and you might do it as well, so there’s inaccuracies all over the place. And also timeliness of information. If you’re writing up stuff, you might be doing it six to nine months after.

Even a tax return, trying to remember what happened 18 months ago is difficult for businesses.

The idea of doing it electronically means the data is live a lot of the time and it’s more accurate because there’s no manual intervention.

So you’re saying there’s no manual intervention. So how does it actually happen? How does the information get inputted?

The ideal would be to use some sort of cloud accounting software. And at that point, you’re raising your invoices through the software. So obviously, you’re not going to send dud sales invoices to a client.

You’re taking photographs of your receipts, and through data capture it’s correct information because it’s there and it’s being directly converted into a purchase invoice or a receipt.

And all that data is being stored electronically within the software. That’s the ideal. From there, it’s taking out what is VAT, what’s income and what’s expenditure. And that data is being collated and pushed through the system and that’s what gets sent to HMRC.

Read more about Making Tax Digital:

So for people who are using accounting software – what is changing on 1 April? Because if it’s already digitally going across, do we need to change anything?

No, if you’re using accounting software that is already MTD compatible, then you don’t really need to do anything. There might be a few code changes that you have to put in but generally you’re good to go. You are perfectly fine. [Editor’s note – check with your vendor if you’re unsure if your software is at the latest version and is ready for MTD].

If you’re not VAT registered, it doesn’t affect you. If you are voluntarily VAT registered, which means that your turnover is less than £85,000, this does not apply to you.

It’s only if you are compulsorily VAT registered, with a turnover of £85,000, that you have to consider Making Tax Digital for VAT.

Need support preparing for HMRC’s changes? We’ve created a Making Tax Digital checklist to help you.


What are the implications if you do not migrate over to accounting software?

You can’t file your VAT returns, basically. The date is 1 April – that sort of go-live date. However, it only affects people whose VAT period starts after 1 April. So we had a client last week say: “I have my VAT return, I have to file it at the end of March – what do I have to do?” And we were like: “No, old style works.”

It’s only anyone whose VAT return starts after the 1st. So if you’ve got a February quarter end, for example, it won’t affect you until about September time. That’s when you do your first submission.

So you take your first VAT return that starts after 1 April, so take it that date – so April, May, June – and you file until 7 August. So in that period, you’ve got to make sure that you’re up and running. So you’ve got a few months.

HMRC is sending letters out to everybody who is affected by this so you have to look out for that letter.

I know you said anyone who isn’t ready for 1 April can’t file their VAT returns. What does that mean if you don’t file your VAT returns?

Ok, so HMRC have been quite good because they’re doing a parallel run at the moment and for the first year, they’re trying not fine people for late filing. You’ll still get penalised for not paying your VAT.

Say, for example, at the moment you use Excel or whatever, and you’ve calculated your VAT return. You probably get your nine boxes, you go on to HMRC and you type in your nine numbers and out it goes. That’s what happens at the moment for the majority of people.

For that return that you do after 1 April, you can’t do that manual typing on to HMRC anymore. It just won’t let you. So that’s why you need some sort of software.

There are bridging products out there. Bridging software is where someone who’s not already on cloud accounting or not MTD compatible accounting products, like Excel, you put all the information in and it has an API, it has a link into this bridging software, it comes into that and that talks to HMRC.

That is a compromise in my eyes. It’s something that will work for the next year or so. HMRC have got a soft landing on this.

I think long term, you do need to start thinking about your actual accounting product and how you’re going to use it in your business.

The ultimate guide to Making Tax Digital

Need help getting ready for Making Tax Digital? Download this free guide to learn about MTD for VAT, Income Tax and Corporation Tax, and what they mean for your business.

Get your free guide
27,023 readers have downloaded this guide
27,023 readers have downloaded this guide

Subscribe to the Sage Advice enewsletter

Join over 500,000 UK readers and get a roundup of our best business advice in your inbox every month.

Ask the author a question or share your advice

If you are a customer with a question about a product please visit our Help Centre where we answer customer queries about our products. When you leave a comment on this article, please note that if approved, it will be publicly available and visible at the bottom of the article on this blog. While your email address will not be publicly available, we will collect, store and use it, along with any other personal data you provide as part of your comment, to respond to your queries offline, provide you with customer support and send you information about our products and services as requested. For more information on how Sage uses and looks after your personal data and the data protection rights you have, please read our Privacy Policy.

Sage Advice Logo