Making Tax Digital (MTD) is the first step in the digital revolution of the UK’s tax system. The changes have been introduced in order to provide businesses with a more modern, streamlined system to keep their tax records and submit information to HMRC, but also to reduce the ‘tax gap’ – payments that fall through the cracks.
MTD is to be introduced with effect from April 2019, and all businesses that are required to be VAT registered - a taxable turnover of over £85,000 - will be required to keep their VAT accounting records in a digital format and must submit their VAT returns by pulling data from those digital records. It will be voluntary for smaller VAT-registered businesses for the time being and there are a limited range of exemptions, such as those businesses without an internet connection.
To comply with the new rules, companies must use an Application Program Interface (API). This must be a two-way API – companies must be able to submit information to HMRC and receive information back. A digital link means numbers can’t be typed manually, or cut and pasted from one system to another, they must flow seamlessly from one system to another.
Around 90% of VAT registered businesses will need to make changes prior to April 2019. Most currently submit VAT returns through the HMRC portal, where figures are manually entered into the system. The type of data, return frequency, payment deadlines and eligibility for special schemes will not be affected by the change. HMRC has confirmed that where there are adjustments to the returns, such as correcting historical errors, a digital link is not required from the outset.
Taxpayers will need to register for the MTD service – either through their agent or directly through the website. They will need their company registration and VAT number. HMRC has promised approval within 5 working days.
Digital taxation is likely to become the standard from here and there are plans to extend it to income and corporation tax in due course.
For more updates on Making Tax Digital, we will be running a series of briefings at some of our office locations, aimed at those responsible for ensuring compliance with MTD for VAT by April 2019 or October 2019. At our London and Birmingham events, we will also be showing a demo of AlphaVAT, the fully service MTD solution produced by leading tax software provider, Tax Systems.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.