Why MTD?
Basically to improve tax accuracy. An astonishing £9bn per annum is lost due to tax errors and miscalculations. By Making Tax Digital businesses will be self-sufficient when managing their accounts and will have easy access to their tax information via online resources – it’s a complete modernisation of how tax information is recorded and submitted to HMRC.
Through the benefits of encouraging businesses to sufficiently monitor their accounts digitally, in one place, through an agent, the government believes businesses will drive performance thus boost productivity and income.
So what’s actually changing?
VAT
As of April 2019, all businesses that are registered for VAT and have a turnover above the VAT registration threshold of £85,000 will be obliged to keep a digital record for VAT purposes and submit their VAT return to HMRC through MTD compatible software. The reason this needs to be done using compatible software is so the information kept on your digital records can be pulled if required.
These digital records will need to be preserved for up to six years.
Information to be kept on digital records:
- Business name, principle place of business and VAT reg number.
- The VAT account showing the audit trail between primary records and the VAT return.
- Details on supplies made and received.
In the event that a business needs to make an amendment to their VAT return, this must be done within four years of submission. Errors that do not fall into this category should be recorded through the submission of form VAT652.
Corporation Tax
MTD for corporation tax will not come into force until MTD for VAT “has been shown to work” and the new system has been tested fully. This predicted to be done by 2020 at the earliest.
Voluntary Participation
Business not obliged to keep digital records for VAT purposes will still have the option to submit this information voluntarily. IT is predicted that many businesses will opt for the new system even if they are not required to do so by law.
Exemptions
Businesses exempt from MTD for VAT are those considered unable to use electronic communications because of religious beliefs, insolvent businesses and businesses that are unable to submit their returns electronically due to disability, age or remoteness of location.
New Systems & Software
Within the time before MTD implementation, businesses will be expected to acquire the appropriate software, hardware and agents to support the MTD transition. Other preparations will include the training of staff to be MTD compliant and efficient.
The software used must be able to connect to HMRC systems via an Application Programming Interface (API) and be fully compliant with MTD.
The software must:
- Keep digital records in accordance to MTD regulations.
- Preserve digital records in line with MTD regulations.
- Create VAT return with digital information held by the software and digitally send this information to HMRC.
- Provide VAT data on a voluntary basis to HMRC.
- Receive information from HMRC via the API platform.
Penalties & Fines
Penalties and fines will be imposed for failure to comply with the new MTD system. A points-based model with taxpayers receiving a point every time they fail to submit on time will be introduced.
The HBP Group Are Here To Help
If you’re thinking that’s two years away, what’s the fuss now? Remember GDPR … the over-hype, the fear-mongering, the inundation of ‘We’re Updating Our Privacy Policy’ subject headers in your inbox the week before the 25/05/2018? It was annoying and unnecessary. Don’t make the same mistake again, and get the facts, take your time understanding them and give yourself plenty of time to prepare.
We advise that if you have any concerns about the MTD transition or the software that you will require, then please do not hesitate to contact us on 01724 400 300, and a one our accounting specialists will be than happy to help you.
Tax avoidance and miscalculations cost the tax payer billions a year, MTD aims to put a stop to this.
