Making Tax Digital (MTD) is one of the most significant changes to the way our tax system works; aiming to make it more efficient and accurate for taxpayers to transmit information and communicate with HMRC.
With the mandatory commencement of MTD for VAT just weeks away, we look at recent developments and updates from HMRC ahead of the 1 April 2019 deadline.
Will it apply to me?
From 1 April 2019, all VAT-registered businesses with a taxable turnover above the VAT threshold of £85,000 are required to keep digital records and send VAT returns digitally to HMRC using MTD-compatible software. The only exception to this is for a small minority of businesses for which HMRC are deferring mandation to ensure there is sufficient time for the service to be tested with them in the pilot before they are required to join from 1 October 2019. A brief list of those deferred would include but is not limited to:
- ‘Not for profit’ organisations that are not set up as a company
- VAT divisions
- VAT groups
- Public sector entities
- Local authorities
- Public corporations
- Traders based overseas,
- Payments on account
- Annual accounting scheme users.
In the case of deferral, HMRC has said they are going to contact the business or entity directly to inform them that this is the case.
Additionally, there are a few circumstances of exemption that may apply where:
- You are a practising member of a religious society or order whose beliefs are incompatible with the use of electronic communications;
- An insolvency procedure has commenced in relation to your business; or
- It not possible for you to make a return using a compatible software return system for reasons of disability, age, remoteness of location, or any other reason.
You can apply for exemption using the VAT helpline on 0300 200 3700 or write to HM Revenue and Customs, VAT Written Enquiries Team, Portcullis House, 21 India Street, Glasgow, G2 4PZ. These applications will be assessed on a case by case basis.
What software do I have to use?
The software that you use is entirely your choice, providing the system in its entirety enables you to complete the MTD process without manual entry of figures to HMRC. It must, as a minimum, let you submit VAT returns and keep records of sales and purchases in a digital format.
If you are already using software that isn’t MTD enabled, you have three options.
- Upgrade to the MTD version. Many software providers have begun updating or reprogramming their software in accordance with the MTD process. If you’re already using digital software to keep records, ask your provider if they plan to or have already made it compatible with Making Tax Digital.
- Move to a completely new MTD product. There are many software providers who have already produced packages that comply with the MTD regulations and the more advanced products can simplify the record keeping and submission process considerably.
- Use a bridging product. Moving to a completely new product can incur significant cost and so a bridging product may be a useful tool for the short term or a viable long term solution in certain cases. A bridging product is something you could use in conjunction with existing software to enable it to be MTD compatible. For example, if you can export the data from your existing software to a spreadsheet format like Excel, the bridging product will enable the data to be submitted to HMRC via a digital link.
HMRC have a frequently updated list of software products that are MTD compatible and a brief overview of what they can be used for. You can find that list here.
Making Tax Digital is an opt-in system. This means that any business or entity who is required to join MTD is responsible for opting in to the system no later than 48 hours before their first MTD return is due. In scenarios where a liability is to be paid via direct debit, this is increased to 15 days. Either the taxpayer or their agent (via ASA, see more below) can sign up to MTD.
Any business or entity whose VAT affairs are “up to date and straightforward” are eligible to register for the MTD pilot which has been running since the 16th October 2018. This will ensure that you are able to test the service, voice concerns and also make sure that your business’ software is eligible to be used for the link to HMRC. In addition, any taxpayers who join one of the pilots are considered to have opted in already. Once you have signed up you will not be able to access the current HMRC system for submitting VAT returns.
It is therefore important that you do not register for MTD until you have MTD compatible software in place and all previous VAT returns have been submitted using the existing method.
Preparation is key and is being strongly encouraged by HMRC. Although they will not penalise anyone who is actively trying their best to comply with the regulations, the ‘soft landing’ period does not cover all penalties.
If you are ready to sign up for MTD VAT, HMRC has published helpful online webinars of how to do it which are available to the public for no charge. You can find the link to the online webinars here.
Using an agent
If you would prefer your agent to sign you up for MTD, here is a brief overview of how the process would work.
Your agent will be able to process the request through their Agent Services Account (ASA) for all existing clients where an HMRC authorisation is already in place. Following this, the agent will need to authorise that the client they are registering has an MTD-compatible system in place before they can then sign the business up to Making Tax Digital. Each client will need to be signed up to MTD VAT individually. This cannot be done in bulk as specific details about each business will be required.
If the business pays VAT via direct debit, an email address for the business must be provided for HMRC to issue details of how to set up the direct debit. Businesses will be able to use their Business Tax Account to see the VAT amounts and deadlines.
If you also use an agent to prepare and submit your VAT returns, they will be able to set up a link between their software and your digital account with HMRC to transmit the returns digitally.
Businesses that pay VAT by Direct Debit cannot sign up to MTD VAT in the 15 working days leading up to the submission date, or the 5 working days after sending a VAT Return.
How can we help?
RRL’s team of friendly experts can help with all aspects of Making Tax Digital. We pride ourselves on taking the time to understand our clients’ businesses fully and helping them to find the solution that best fits their needs and budget. We are also able to offer training to get businesses up and running with their software, in addition to providing ongoing client support and VAT advice.
If you have any queries following anything covered in the above article, please don’t hesitate to contact us for assistance.
If you want to find out more for yourself before getting in touch then HMRC have a page that provides further information regarding Making Tax Digital, which you can view here.
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.