How to prepare for Making Tax Digital (MTD)
Michelle Downs from London-based Perrys Chartered Accountants provides her advice for preparing for Making Tax Digital (MTD).
There are just a few weeks to go before the first major stage of HMRC’s Making Tax Digital (MTD) initiative is introduced. From 1 April 2019, VAT-registered businesses with a taxable turnover above the VAT threshold (currently £85,000) will no longer be able to type their figures into HMRC’s website. Instead, they will have to submit their VAT returns using MTD-compatible software.
There is a six-month deferral to the 1 October 2019 for businesses who fall into one of the following categories:
• Trusts • ‘Not for profit’ organisations that are not set up as a company • VAT divisions • VAT groups • Public sector entities that are required to provide additional information on their VAT returns (government departments, NHS trusts) • Local authorities • Public corporations • Traders based overseas • Those required to make payments on account • Annual accounting scheme users
MTD is part of the government’s plans to modernise the tax system and make it easier for individuals and businesses to get their tax right and keep on top of their affairs using a digital tax system.
At present, businesses registered for VAT but with a turnover below the VAT threshold can choose to submit their VAT information via MTD or continue to use HMRC’s online portal.
How do I submit a digital tax return? HMRC is encouraging all businesses to use commercial accounting software for MTD. The use of spreadsheets will be permitted, but bridging software will be required to transfer the relevant VAT information to HMRC. HMRC is working with more than 150 software suppliers who say they will provide software for MTD in time for the April deadline. Details are being updated regularly on the government’s website.
If you’re already using accounting software, check with your supplier to make sure it’s compatible with MTD.
There are some exemptions to the MTD ruling. For example, if it isn’t reasonably practicable to keep digital records because of age, disability or remoteness of location you can apply to be exempt from submitting VAT returns using MTD-compatible software. Practising members of a religious society whose beliefs prevent them from using computers can also apply for exemption.