We have now passed a major milestone after years of proposals & consultations and it is less than a year until the first wave of businesses will be required to submit tax information online. In this three-part series I’ll be looking in-depth at Making Tax Digital (MTD) and what this means for businesses across the country. I’ll look at what MTD actually is, who it affects, what businesses will be required to do, the software needed to comply and summarise the potential penalties for those who fail to comply.
What is MTD?
MTD is a Government initiative affecting the way all taxpayers will deal with their tax affairs in the digital age. The aim of this new legislation, through increased automation and reduced human error, is to improve efficiency and to ultimately make the tax system operate much more closely to “real time”.
The next key implementation stage of this new regime will come into effect from 1 April 2019 and will be compulsory for more than 1.2million VAT-registered UK businesses.
HMRC has advised that all other taxes, for businesses and individuals, are not due to come under the new regime until at least April 2020. However, there is a growing expectation, arising from HMRC sources, that April 2020 will in fact be the date for quarterly reporting to come into force for the majority of businesses.
Under MTD, most businesses, self-employed and landlords will be required to keep track of their financial affairs digitally. They will be required to use digital tools, such as software or apps, to keep records of their income and expenditure.
The MTD VAT regulations
All VAT-registered businesses (both incorporated and unincorporated) with a turnover above the current VAT threshold of £85,000 will, from 1 April 2019, be required to record and send their VAT information to HMRC digitally via Making Tax Digital-compatible software.
This new VAT regime applies to sole traders, partnerships, companies, LLPs and charities. Whilst more than 99% of all VAT returns are currently sent to HMRC electronically, this will no longer be enough to be MTD-compliant. Only 13% of VAT returns are submitted via software, so statistics suggest that the majority of UK businesses will need to look at making the move to MTD-compatible software in order to be compliant under the new legislation – and ideally well in advance of the April 2019 deadline.
For those companies or unincorporated businesses with a turnover that falls below the VAT threshold, entering into the MTD VAT regime is optional. Those businesses which sign up, either on the basis of turnover or choice, will remain in the regime, even if turnover falls to a level below the VAT threshold.
There are some limited exemptions from the new regulations; these are on the grounds of disability, religious belief or if the business is the subject of an insolvency procedure.
In the next blog I will be looking at record keeping and software requirements.
If you want to discuss any of the points raised in this blog please get in touch with me here, or:
0141 886 6644
The information in this blog should not be regarded as financial advice. This is based on our understanding in May 2018. Laws and tax rules may change in the future.