What you need to know about Making Tax Digital
From 1 April 2019, there are important changes to the way some of us file our tax returns. The introduction of the Making Tax Digital (MTD) initiative is a key part of the UK government’s plan to make the taxation process easier. The principal aims are to make the system more effective, more efficient and more accurate for everyone. Chris Street, Senior Accountant, gives the low down on MTD.
The scheme has been on trial since October 2018, with around half a million businesses invited to take part in the pilot. In this way HMRC has been able to hone the system in a series of live scenarios. But from 1 April 2019, around one million businesses that are registered to pay VAT will be required to keep their VAT records digitally and file their returns quarterly, using MTD-compatible software, such as Xero. The first return will be due on 30 June 2019.
The details of which digital business records must be kept, ways to record transactions digitally, and what constitutes compatible computer software, are outlined in ‘VAT Notice 700/22: Making Tax Digital for VAT’, which can be read and downloaded here.
If a company’s taxable turnover falls below the VAT threshold during the year, it is still required to keep digital records and send HMRC VAT returns using MTD-compatible software.
Simplify tax management
By implementing the MTD system and software, HMRC is hoping to become one of the most digitally advanced tax administrations in the world. It is intended to make it simpler for businesses to manage their tax and will save them precious time, which can otherwise be devoted to maximising business growth and encourage sound financial planning.
Companies can defer
There are some exemptions on the spring 2019 uptake, with companies with more complex requirements able to defer digital taxation until 1 October 2019. This six-month deferral rule will apply to customers such as trusts, ‘not for profit’ organisations that are not set up as a company, VAT divisions and groups, public sector entities required to provide additional information on their VAT return (Government departments, NHS Trusts), local authorities, public corporations, traders based overseas, traders required to make payments on account and annual accounting scheme users. For everyone else, the new system will commence in April 2019 and you can find out what you need to do here.
Chadwick & Co is a Xero Silver Champion Partner. Senior Accountants Chris Street is one of our twelve qualified Xero trainers. So, whatever the size of your business, if you seek advice on any aspect of the introduction of MTD, why not email or call Chris on 0161 370 9600.