From 1 April 2019, certain businesses will be required to comply with the government’s new Making Tax Digital (MTD) regime. MTD represents a significant change to the way taxpayers keep their accounting records and submit information to HMRC. Will you be affected? And what should you do to be compliant?
Initially, Making Tax Digital will apply to businesses that are registered for VAT only. This means that, for tax return periods starting on or after 1 April 2019, businesses with a turnover above the VAT threshold (currently £85,000) will be required to keep digital records. They must use MTD compatible software, or a combination of software and spreadsheets, which can connect to HMRC via an Application Programming Interface. The appropriate software will also allow you to submit VAT returns directly from the digital records.
Manual inputting VAT returns will no longer be acceptable. The government accepts that this will be a huge change for many businesses who do not currently keep digital records and, as such, there will be a ‘soft landing’ period of 12 months. During this period, HMRC will not impose penalties in cases where digital links do not exist between software programs used for submission.
With one exception, businesses will no longer be able to submit returns through HMRC’s online portal. Businesses who have voluntarily registered for VAT will still be able to use the online portal unless they elect to enter the MTD regime.
MTD will not be mandatory for income tax or corporation tax until April 2020 at the earliest. In light of the uncertainty surrounding the impact of Brexit, plans for initiatives such as real-time tax coding and Simple Assessment have been delayed. However, this will mostly affect non-business taxpayers.
What do you need to do?
HMRC pilot schemes for VAT and income tax are currently underway for small businesses and landlords. Whilst there is not necessarily any advantage to taking part in these, it is definitely time to consider the next steps towards MTD for you and your business.
If your business still uses a manual system for keeping records, we advise you begin the transition to digital record keeping. Your RfM advisor will be able to recommend a suitable package and we can also help you with initial set-up, training and ongoing support if required. Businesses that are already digital will need to check when their software provider will meet the requirements of Making Tax Digital. You may need to upgrade software or install a bespoke solution to ensure data can be sent seamlessly to HMRC.
If you are unsure whether MTD affects you, you can find more detailed information on our fact sheet.
We recently contacted RfM clients to inform them about the forthcoming changes and will be in touch again soon to discuss the steps you should take to be compliant. If you have any questions in the meantime please do not hesitate to get in touch. Speak to your usual advisor, contact one of our offices or enquire online.
For information of users: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.