In this blog, partners Jack Posner and Darren Stone of Leon and Company Chartered Accountants in Leeds write about Making Tax Digital.
For all those business owners, unless you’ve been on a desert island, you will no doubt have heard about the new ‘Making Tax Digital’ regime. If you haven’t heard of it, then you should read ahead to see if it affects you. For the rest of us ‘in the know’, we’ve tried to answer the main points.
What is Making Tax Digital (MTD)?
Essentially all UK businesses with a turnover above the VAT threshold (currently £85,000), must keep digital records and send in their VAT returns to HMRC digitally.
When does this come into effect?
All VAT returns with a quarter commencing on, or later than, 1st April 2019 will need to comply. Therefore, the earliest compulsory MTD deadline is 7th August 2019 (although some people have started early!).
Does it affect all taxes?
At the moment, only VAT has to be reported and filed under MTD. There are plans for other taxes to be reported this way (i.e. corporation tax, self-assessment), but the roll-out of this will not be any earlier than April 2020; in fact, there is no concrete timetable at this stage. In our opinion, MTD will not be extended to other taxes until VAT MTD is shown to be running smoothly.
What do I have to do then?
All qualifying businesses must record transactions digitally. In many cases, this means transferring your records to a software-based bookkeeping package, or at the very least recording your transactions on an electronic spreadsheet (HMRC have explicitly confirmed spreadsheet bookkeeping still counts as digital bookkeeping). If you are doing either of the above, then you are already keeping your records digitally. So far, so good!
Is that all?
Not quite. MTD also requires that the VAT return itself is transmitted digitally to HMRC. This is not the same as logging on to the HMRC Gateway and typing the numbers in to the 6 boxes! Essentially, HMRC do not want any manual typing to take place between the initial input of the transactions and the VAT return itself.
How do I do that?
If you are using a cloud-based bookkeeping package, then that will create the VAT return automatically and allow you to send it in with the push of a few buttons. If you use a spreadsheet, then you will need to obtain some special ‘bridging software’ which will extract the figures from the spreadsheet and create a digital VAT return which transmits to HMRC. In either case, you will have avoided manually ‘keying-in’ the figures into the VAT return – and therefore ensuring full compliance.
What if I still write up my records in a ledger book (the old way)?
Then I’m afraid you will now need to digitalize at least some of your bookkeeping to become compliant. We recommend that you contact your accountant learn more.
