Making Tax Digital

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Making Tax Digital 

In July 2017, the Government announced that Making Tax Digital (MTD) will commence in April 2019 for VAT registered businesses with a taxable turnover over the VAT threshold. Only businesses that meet the above criteria will have to keep digital records and initially only on VAT from 2019. 

 

Timeline for MTD

From April 2019

This will impact VAT reporting by all VAT registered businesses and organisations with a turnover above the VAT threshold. Organisations effected include sole traders, partnerships, limited companies, non-UK businesses registered for UK VAT, trusts and charities.           

From April 2020

At the earliest. This will impact MTD for income tax and corporation tax. MTD for VAT may also be extended to all VAT registered businesses.

 

What is the aim of MTD?

MTD is part of government plans to make it easier for individuals and businesses to get their tax right. HMRC’s aim is to become one of the most digitally advanced tax administration systems in the world. All of your tax information will be in one place and you will be able to pay tax based on your business activity during the year by uploading and updating your tax account in real time. 

 

Who will be affected by MTD? 

If you own a business, or are self-employed and you pay income tax, national insurance, VAT or corporation tax it is likely that you will be affected. This means you will be required to keep track of your tax affairs digitally using MTD compatible software and to update HMRC at least quarterly via your digital tax account. Eventually this will replace annual tax returns.

 

Has MTD been delayed until 2020?

MTD has been delayed for other taxes until 2020; it will be a requirement from April 2019 for all VAT-registered businesses with a turnover above £85,000 per annum to submit their VAT returns using MTD-compatible software. 

 

Aren’t VAT returns already submitted online?

From April 2019, the current HMRC online portal will close for MTD eligible businesses and they will need to submit their VAT return figures from their accounting system. HMRC has identified that approximately £4bn per year is lost in simple VAT mistakes alone and has stated that it expects MTD to assist in reducing the errors made and thereby reduce the VAT lost as a result of businesses failing to take reasonable care.

 

Do I need a new link to the HMRC gateway?

Everyone will be allocated a digital account through the current Government gateway. You’ll need to log into this and update your information every quarter, using digital accounting software. This means a move away from desktop record keeping and onto a cloud-based system.

 

Do I have to provide HMRC with any more information?

For VAT returns submitted after April 2019, you will be required to submit the information which completes the existing nine boxes on the VAT return digitally using MTD-compatible software. You can choose to voluntarily submit supplementary data. 

 

What other details will I need to keep?

You will need to keep digital records of your sales, broken down by VAT liability. You will need to retain other information, such as all adjustments, business entertainment, car leasing and reverse charges on imported services, and summarise purchases broken down by VAT liability. 

 

What if I do not meet the MTD requirements by April 2019?

HMRC has confirmed that there will be a soft landing period between April 2019 and March 2020, in which no financial penalties for non-compliance. There must be a digital link between your accounting records and HMRC by April 2019.

 

MTD Exemptions

Businesses and individuals will not have to file digitally if it is not practicable to use digital software to keep records and file VAT returns due to age, disability or remoteness of location; if the business is subject to an insolvency procedure; or if the business is run entirely by practicing members of a religious society or order whose beliefs are incompatible with using electronic communications or keeping electronic records. 

To apply for an exemption go to https://www.gov.uk/government/organisations/hm-revenue-customs/contact/vat-enquiries 

 

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