MAKING TAX DIGITAL – How will it affect your business?
With less than six months to go until the first staging date for implementation, we outline what you need to know about Making Tax Digital (“MTD”) and guide you through what measures to take to prepare for the change.
What’s the reason behind MTD?
The latest figures published by HMRC estimate that the tax gap stands at £33 billion which is 5.7% of tax liabilities. 41% (13.7 billion) of the tax gap is attributed to small businesses.
According to the Office for National Statistics, although 99% of VAT returns are submitted online, only about 13% of those are submitted via software. The other 87% of VAT returns are manually entered into HMRC’s Government Gateway.
HMRC’s ambition is for the UK to become one of the most digitally advanced tax administrations in the world. It is hoped that MTD will help for the following reasons:
- Digital records should eliminate errors with calculations
- Help is built-in to the software products
- Information is sent directly to HMRC from the digital records avoiding errors as data is transferred from one system-to-another
What will change under MTD for VAT?
Under the rules, from April 2019 VAT registered businesses with a taxable turnover above the VAT threshold (currently £85,000) will be required to keep digital records and will no longer be able to use the Government Gateway website.
VAT returns will need to be maintained digitally and submitted via MTD complaint software. Hand written records will be a thing of the past for businesses affected by MTD for VAT.
HMRC have created a list of suppliers who provide MTD compliant software, which you can find here:
https://www.gov.uk/government/collections/commercial-software-developers
Overseas businesses that have UK taxable turnover above the UK VAT registration threshold will also be subject to the requirements of MTD for VAT.
Need help with MTD?
Contact one of our partners who would be pleased to meet with you and undertake an MTD compliance review of your business.