As part of the wider drive to tackle the large tax gap and improve the business environment in the UK, the government are implementing new requirements around tax filing.
Making Tax Digital (MTD) was developed to assist individuals and business owners with their tax filing and remain up to date with their business activities.
With only seven months to go, it has now been confirmed that Brexit will not derail the 1st April 2019 start and the government have released the names of some providers who are compatible with the new MTD software.
If you are not familiar with MTD and how it could impact your business, below are 8 tips we believe you need to know.
Who this will affect
It is mandatory for all VAT registered businesses with a turnover above £85,000 for VAT periods starting after 1st April 2019. Companies below this threshold, can also comply voluntarily.
There are a few reasons businesses may be exempt from MTD:
- The requirements may go against religious beliefs (e.g. the use of computers)
- The business is insolvent
- It may not be reasonably practicable to use digital tools such as age, disability, location
The benefits of MTD
There are many benefits that individuals and businesses can gain from MTD;
- Tax payers will be able to see clearly that data is up-to-date and accurate. HMRC will then be able to use the information to tailor their service to their individual customer’s situation.
- Tax payers will not have to wait to know how much tax to pay. HMRC will gather and process information as close to real time as possible.
- By 2020, tax payers will be able to see one single financial account of their liabilities and entitlements to give a more comprehensive picture.
- Tax payers will be able to interact digitally with HMRC at a time which suits them best.
Key Steps to follow
To ensure you are ready for MTD, key steps to follow are;
- Ensure you have compatible software
- Identify the procedures you may need to modify e.g. how you are submitting to HMRC’s online gateway (excel or paper?) and will the software you currently use allow you to submit to the gateway?
- Monitor your tax liabilities and payments
- Find an accountant who understands digital technology
The VAT records you need to keep for MTD
- Business name
- The address of your core location
- VAT registration number
- An account of any VAT accounting systems used
For each sale made:
- Time and value of each sale
- The VAT rate charged
For each purchase:
- Time and value of each purchase including VAT which you cannot claim back
- The total VAT claimed
Your VAT account should include;
- Output VAT due on sales and acquisitions from other EU countries
- The VAT due on behalf of your supplier under a “reverse charge” process
- The VAT that needs paid or reclaimed following an amendment
- The VAT claimable from business purchases and on acquisitions from other EU member states
- Any other additional amendments required by VAT rules
The cost involved
There will be a cost for businesses who are yet to implement digital software. However, there are great long-term efficiency advantages of doing so;
- The prevention of late filing
- The avoidance of errors
- Time and efficiency savings
There are a variety of providers who provide their software on a subscription basis and can tailor the packages to suit your organization. We at elev8 by Mazars can help you find the most appropriate one to fit your needs and gain the most benefit.
Penalties if you fail to comply
There will be a penalty if you fail to fulfil MTD requirements. The system for how penalties will work is currently under review. However, we know it will work on a point-based system where if you receive a certain amount of points, a monetary charge will be incurred.
Future tax digitalisation
HMRC’s goal is to become one of the most digitally advanced tax administrations in the world. Therefore, tax systems will continue to be modernised to be more effective, efficient and simple for customers to submit to. The next step after April 2019 will be for other taxes (income tax and corporation tax) to become digital by 2020. We can help you through the whole digitisation tax journey to ensure the transition for you and your business is as smooth as possible.
Get in touch
At elev8 by Mazars, we’re here to help with everything from small questions to handling your cloud accounting for you. For more information, please contact us below and our expert team will be on hand to help.