Making Tax Digital for VAT Returns

Making tax digital (MTD) – who needs to register and how to comply

A recent headline in the Sunday Times stated that just 4% of small businesses have signed up for Making Tax Digital (MTD).

Even if you are using MTD compliant software – be warned – you still need to sign up.

It did not say whether that’s 4% of all small businesses or 4% of those who are currently required to follow the MTD rules. Either way, all small businesses should be aware of MTD because even those who are currently exempt, may need to report taxes (and not just VAT) digitally in the future.

Is MTD optional for small businesses?

  • Yes, if you are currently VAT registered and your taxable turnover is less than £85K per annum.
  • No, if you come under MTD rules (see below).
  • N/A, if you are not VAT registered then current MTD rules do not apply to your business.

Why have so few businesses signed up to MTD?

There are three reasons why this may be the case:

  • Firstly, some businesses may be under the impression that because they are using MTD compliant software that they don’t have to do anything – be warned, you still need to sign up.
  • Secondly, some businesses may be confused by HMRC’s references to signing up to their ‘pilot’ scheme, which implies that it may be optional and not ready to be rolled out. If you do come under the MTD rules, then don’t be put off by this wording.
  • Thirdly, you don’t have to sign up until MTD is actually mandatory for your business. However, as the deadline is fast approaching, all businesses that fall under the MTD rules, should check that they are ready (see below).

Who needs to register for MTD?

The MTD rules come into effect from 1 April 2019 and will apply to all VAT registered businesses (with a taxable turnover of over £85K per annum), unless they fall into the deferral group in which case the date is 1 October 2019.

The deferral group includes: trusts, not-for-profit organisations that are not set up as a company, businesses that submit annual VAT returns, and those that make payments on account. For the full list refer to HMRC’s website.

What is the deadline for MTD?

Businesses need to keep digital records and submit VAT returns using MTD compliant software from the start of their first VAT return period beginning on or after 1 April 2019, or 1 October 2019 if they are covered by the six-month deferral (see above).

For example, if your VAT period ends 31 March 2019, your return for the period 1 April-30 June 2019 will have to be submitted digitally by 7 August 2019. The VAT return data will need to be kept digitally from the start of the VAT period which in this case would be 1 April 2019.

What you must do before registering for MTD

  • Do not sign up to MTD until you are ready to submit your VAT returns via MTD compliant software. Check HMRC’s website to find out if you are using MTD compliant software. If you are not using MTD compliant software, then check our suggestions below.

If you pay your VAT by direct debit, check the window during which you can sign up for MTD.

  • If you pay your VAT by direct debit you will not be able to sign up in the 15 working days leading up to your submission date and the 5 working days immediately after it, so make sure you work out the best time to sign up and don’t leave it too late.

If you are not using MTD compliant software, what can you do?

You, or your agent, will need to use bridging software. This is software that extracts the relevant VAT return information from a product or spreadsheet and transfers it electronically to HMRC. The bridging software needs to be MTD compliant. If you need help with this, then contact our accountancy team.

Going forward, if your existing system is digital but is not going to be MTD compliant any time soon, then consider moving to an accountancy package that is MTD compliant.

Is all MTD compliant software cloud-based?

No. If you dislike or don’t trust cloud-based accountancy software packages, then you can opt for other software packages or spreadsheets.

The key requirement is to keep records digitally and if you are using multiple products or spreadsheets, then they must be digitally connected and either API enabled or used in combination with an MTD compatible software product or spreadsheet so that data can be sent to and received from HMRC systems.

Under MTD, what information is sent to HMRC?

The information submitted to HMRC will remain the same and include the same nine boxes that it currently does. No additional information needs to be submitted with MTD.

Is MTD limited to VAT returns?

At the moment, yes. However, once this phase has been implemented, MTD will be introduced for income tax for the self-employed and for individuals with income from property. Afterwards, MTD for corporation tax will follow.

Authors:

  Delia Porter, MD & Founder
  Tanya Bennett, Chartered Accountant (ACA)

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