Making Tax Digital (MTD) is a fundamental change to the administration of the UK tax system. It is the UK government’s initiative to deliver a modern digital tax system for all businesses and their agents, supporting them to get their tax right, making it more efficient and effective and reducing the losses made each year on taxation errors.
Making Tax Digital (MTD) will affect how you maintain your accounting and tax records and how you transact and communicate with HMRC. The process to digitalise the UK tax system is already underway. The transformation will start with Making Tax Digital (MTD) for VAT from April 2019. This imposes new requirements for digital record keeping* on VAT registered businesses and organisations over a certain threshold (turnover over £85K). It will remain voluntary for VAT registered businesses below the VAT threshold until 2020 at the earliest.
The plan is to move all businesses, organisations and individuals to a fully digital tax system by 2020. By then, taxpayers will be able to register, file, pay and update their information at any time of the day or night, and at any point in the year, to suit them. For the vast majority, there will be no need to fill in an annual tax return. It is envisaged that by 2020, taxpayers will be able to see their complete financial picture in their digital account.
*A digital record refers to records that are captured and held in an electronic/digital format and can viewed on a computer, whether a desktop, laptop, tablet or mobile phone
What does MTD mean for my business?
Making Tax Digital for Business (MTDfB) will bring an end to bureaucratic form-filling and the annual tax return. It will change the way your business pays its taxes to HMRC.
From April 2019, you will be required to send information to HMRC digitally via functionally compatible software at least four times a year via your digital tax account. This does not mean that you will have to complete four tax returns per year, you will simply need to provide more regular financial updates online.
By doing so, MTD will operate much more closely to ‘real time’, keeping you up to date and removing the risk of missed deadlines, unnecessary penalties, debts arising and errors in the system being carried forward from one year to the next. In essence, it means you will not have to wait until the end of the year or longer to know how much income tax you may have to pay. You will be presented with a complete financial picture of your tax affairs in your digital account; with the ability to see and manage all of your liabilities and entitlements together for the first time.
You will be required to use a functionally compatible software product to submit your returns to HMRC. This means a software programme or programmes which can connect to HMRC’s system via an Application Programming Interface (API).It must be able to support 2-way communication. The current HMRC online tax return services will be withdrawn for those within the scope of the MTD rules.
If you are still using spreadsheets or manual calculations to compile your VAT return figures, you will need to review this process with a view to digitalising where necessary in order to comply with the new requirements. This might involve creating or purchasing new software to enable this automatic linkage to take place.
HMRC will continue to update a list of ‘approved’ software developers who have gone through successful testing – to include both bridging software / API-enabled spreadsheets.
In summary, MTD has 3 main requirements for you to comply with:
- All data must be recorded digitally via commercial software.
- Transfer of data from one system to another must be done digitally (2-way communication is required).
- Submission of tax return to HMRC must be done via HMRC’s API.
We know that change can often be unsettling, especially if it requires you to adopt new technology. However, quarterly tax filing should lessen your workload and by updating your accounts more often, you’ll be able to react faster to opportunities and threats in the business.
What are the timelines for going fully digital?
You need to start planning the move to digital records sooner rather than later, getting advice from your agent or software provider where appropriate.
To give you time to adapt, HMRC is introducing Making Tax Digital in stages.
- 1stApril 2019 – Businesses will be mandated to keep their records digitally and provide quarterly updates to HMRC for their VAT.
- 1/4/19 – 31/3/20– The HMRC will not enforce the requirement to have digital links between software programs. This easement is call the ‘soft landing period’. After that, all transfers of data between digital records must be transferred digitally. However, there is no soft landing period for the digital submission of the VAT return.
- 2020– In the future, MTD will incorporate other taxes. The current plan is to transition corporation tax in 2020 and other transactional reporting beyond that.
What is my next step?
Firstly, try not to think of making tax digital as just another obligation. This is your opportunity to regularly check income, expenses and profit in your business – which will help you make better decisions and take control of your business.
You should take a moment to understand the needs and requirements of the policy in more depth here. You will also want to ensure your software has plans to comply with MTD and HMRC’s API (see below more information on what steps Intact Software is taking to ensure our software products, Intact iQ, Intact Xline and Intact V18, enable your business to comply with the new regulations).
What role should my business management /ERP software provide play?
You must use ‘functionally compatible software’ (digital records) to meet the new VAT requirements. This means a software programme or programmes which can connect to HMRC’s system via an Application Programming Interface (API). Your software must therefore be able to:
- Keep the required records in a digital form
- Preserve those records in a digital form for up to 6 years
- Create a VAT return from the digital records
- Provide HMRC with this information digitally
- Provide HMRC with additional data on a voluntary basis
- Receive information from HMRC about your business’s compliance record
What is Intact doing to help me meet my MTD obligations?
Intact is an HMRC approved supplier of Making Tax Digital (MTD) compatible software. This applies to all of our software products – Intact Vline, Xline and Intact iQ.
The functionality we have added to our software to facilitate MTD compliance was rolled out to all of our existing customers free of charge; forming part of a standard upgrade process.
Customers can contact our local support team to organise their upgrade date as we will be rolling out these upgrades in a phased fashion.
To contact our support team please click here
Last updated Jan 2019.
Where can I find out more?
The HMRC will continue to use GOV.UK– the website for the UK Government – as their primary way to provide you with guidance on government services and information.
- Overview of making Tax Digital – (Source Gov.UK)
- HMRC VAT Notice 700/22: Making Tax Digital – (Source Gov.UK)
- Making Tax digital: consultations – (Source YouGov)