From 1 April 2019, the government’s major Making Tax Digital (MTD) programme became law for over one million VAT-registered businesses earning more than £85,000.
The new rules, first announced in 2015, will mean most businesses above the VAT threshold will need to keep their records digitally and submit their VAT return using MTD-compatible software for VAT periods starting on or after 1 April.
HMRC believes that MTD will make it easier for businesses to get their tax right first time, and they have been urging businesses to get ready. If your business is going to be affected, then HMRC should have already written to you with information on what you need to do.
Almost 100,000 businesses have already signed up to the new service. More than 4,000 businesses are now signing up to MTD every day to experience a more integrated approach to business and tax.
During the first year of VAT mandation, HMRC will take a light touch approach to penalties by not issuing filing or record-keeping penalties where businesses are doing their best to comply with MTD. This is to give businesses time to become familiar with the new requirements.
Speaking about the launch of MTD, Mel Stride MP, Financial Secretary to the Treasury, said:
“Delivering Making Tax Digital for VAT is the first step toward our ambition to create one of the most digitally advanced tax authorities in the world.
“The rules that come in from today will give businesses more control over their finances, allowing them to spend their time focusing on innovation, growth and the creation of jobs.”
Theresa Middleton, Director of the Making Tax Digital for Business Programme, said:
“Tens of thousands of businesses joined our pilot over the last 6 months and have helped us to test and improve the live service ensuring we have the right support in place to help people transition.
“Now is the time for those businesses affected by MTD who haven’t done so already to begin preparing to switch over and start experiencing the benefits MTD has to offer. You don’t necessarily need to sign up from day one, but you do need to make sure you’re keeping your records digitally for your next VAT period which starts on or after 1 April.”
Whilst there are clear benefits to digitising tax and accounting, such as having accurate and timely financial information, allowing businesses to make better, more informed decisions, HMRC has been criticised in some quarters for pushing through MTD for VAT despite figures showing that many businesses are still not prepared.
What businesses need to do now
If you have not prepared, do not panic. 1 April is not a ‘cliff edge’ for sign-ups – the first returns under the new system for the majority of businesses, which file VAT quarterly, won’t be due until August at the earliest.
Those already using software will need to ensure it is MTD-compatible then sign up to the new service and authorise their software for MTD.
For those who are not using an accountant or don’t currently use software, you can still sign up and there is information available to help you prepare, including about what software is available.
- take steps to find out if your business is affected by the Making Tax Digital changes and what you need to do if it is. Most businesses above the VAT threshold have to start keeping their records digitally and sending their VAT return to HMRC direct from their software for VAT periods starting on or after 1 April
- talk to your accountant or agent – if you use one to manage your VAT affairs – about how they are making returns MTD-compliant
- speak to your software provider if you already use software to ensure it will be compatible
Those businesses that are either not represented by an accountant and/or do not already use software will need to select software to use and sign up to MTD, then authorise their new software for MTD. The GOV.UK webpages provide information on a wide variety of products, from free software for businesses with more straightforward tax affairs, to increasingly sophisticated paid solutions. There are also products that can be used in conjunction with a spreadsheet for those businesses that don’t want to change their underlying record keeping system.
For easy-to-use guides and advice for businesses, agents, see guidance on GOV.UK: Making Tax Digital for VAT as a business: step-by-step.
You can also read HMRC’s Making Tax Digital (MTD): Mythbusters guide.
This publication has been prepared by RRL LLP. It is to be treated as a general guide only and is not intended to be a comprehensive statement of the law or represent specific tax advice. No liability is accepted for the opinions it contains, or for any errors or omissions. All rights reserved.