Making Tax Digital (MTD)
Under Making Tax Digital (MTD) for VAT, most VAT registered businesses are required to use 'functional compatible' software in order to record their transactions and report their VAT.
- MTD commences for the first VAT accounting periods commencing on or after 1 April 2019, so for example the first VAT returns affected will be for the period 1st April – 30th June 2019.
- It applies to VAT registered business with a turnover above the VAT threshold (currently £85,000)
- Certain businesses are deemed as complex for VAT, their MTD start date is deferred and commences on the first VAT accounting periods on or after 1 October 2019. HMRC should notify you of this, but please speak with us if you expect your business may be considered ‘complex’.
MTD means that qualifying VAT registered businesses:
- Keep records digitally for VAT purposes
- Use functional compatible software
- Submit VAT return information to HMRC directly through their software
Requirements for MTD
VAT registered businesses whose taxable supplies exceed the VAT registration threshold in any 12 month period ending or after 31 March 2019 are mandated into MTD unless they are exempted, excluded or their start is deferred (see above).
A VAT registered business whose taxable supplies do not exceed the VAT registration threshold may elect to ignore this exemption and opt in to MTD.
A business who is mandated into, or voluntary joins MTD, remains in MTD until they Deregister for VAT, or meet one of the exemptions below. They cannot leave MTD merely because the taxable supplies drop below the VAT registration threshold later on.
All businesses have to elect in to join to MTD, unless they are exempt.
- Go to gov.uk
- Search for 'Sign up to Making Tax Digital'
- Sign up as a business
Digital records
- Digital records must be kept on functional compatible software.
- Digital records must record the following details:
o Business name
o Principal place of business
o VAT registration number
o Details of any VAT scheme used, such as Cash Accounting, Flat Rate Scheme, Annual Accounting etc.
o A VAT account
o Information about the amount of supplies, including time of supply and VAT rate used
- Digital records must be retained within functional compatible software for up to 6 years and for up to 6 years following a deregistration.
Software
- MTD software has to be functional compatible software, i.e. capable of connecting to HMRC’s systems via Application Programming Interface (API).
- The information submitted will as a minimum include the current 9 VAT Return boxes.
- Additional supplementary information may be submitted voluntarily.
- VAT accounting entries should only be physically entered once.
- Bridging software will act as the link between HMRC and the user. Bridging software will extract the digital information and submit it to HMRC.
- The software used to maintain digital records must be capable of working with bridging software in order for the information to be filed. For example, commercial accounting software will likely be set up to submit to HMRC directly, i.e. it has the bridging software.
- Spreadsheets alone can be used for digital record keeping, as long as bridging software is available to extract the required information directly from the spreadsheet and send this to HMRC, and receive information from HMRC.
- Alternatively, spreadsheets can form one part of the functional compatible software along with other software. As long as there is a digital link between the various parts of software, and at the end the information can be submitted digitally to HMRC, this will be acceptable.
Exemptions from MTD
MTD only applies to VAT registered business, the following are exempt from MTD
- VAT registered businesses whose taxable supplies have not exceeded the VAT registration threshold in any 12 month period ending on or after 31 March 2019 (unless they elect to join MTD)
- Practising members of certain religious society or orders.
- Businesses in insolvency.
- Where for reasons of age, disability or location HMRC accept it is not reasonably practicable to apply the rules.