What is Making Tax Digital (MTD)?
The UK tax system is widely regarded as one of the most complicated in the world. That’s why the government is introducing Making Tax Digital as the cornerstone of their plans to make tax easier and more efficient.
With Making Tax Digital, everyone – businesses and individuals alike – will have access to their own personalised Digital Tax Account. The account will hold information gathered by HMRC from sources relating to payroll, interest, dividends, etc., which will be submitted once a quarter in place of the annual tax return.
It’s HMRC’s ambition to become one of the most digitally advanced tax administrations in the world, and modernising the tax system with Making Tax Digital is a step in the right direction.
How will MTD apply to you?
Eventually every taxpayer whether a business or individual in the UK will have a Digital Tax Account set up with HMRC and all tax data will be held in one place in this Digital Tax Account. Paper records will no longer be sufficient, and they will cease to meet the requirements of tax law.
Making Tax Digital will impact businesses and individuals, but not all at once.
For VAT registered businesses with a turnover above the VAT threshold, it will be mandatory to use digital compliant software starting from 1 April 2019.
MTD for income tax and non-VAT registered entities (self-employed, partnerships, trusts and landlords who complete self-assessment tax returns) is expected to be implemented later, but not before 2021.
What you need to do if you are VAT registered
Your VAT Return for the first VAT period starting on or after 1 April 2019 will need to be submitted digitally.
You will be required to send a summary of your income and expenditure for your VAT period via your Digital Tax Account.
Speak to Saint & Co to check that your current system is able to perform this digital submission.
What you need to do if you aren’t VAT registered
Whilst the April 2019 deadline for MTD does not apply to you, with mandatory digital reporting for VAT registered businesses coming on stream shortly, the changes for non-VAT registered businesses will undoubtedly follow from 2021 onwards.
It is, therefore, wise to factor MTD into your future plans particularly with regard to financial record-keeping.
Timeline for Implementation
Making Tax Digital is already happening, with a number of small pilot tests underway.
Live pilot of Making Tax Digital for VAT and income tax
Businesses with a turnover above the VAT threshold will be mandated to keep digital records and submit VAT returns via compatible digital accounting software
HMRC will look to expand the scope of Making Tax Digital, assuming the system is working as expected
How is MTD going to be enforced?
A points-based system is expected to be put in place from 1 April 2021 to deal with the late digital submissions [along similar lines to driving offence points]. A taxpayer will automatically receive one point every time they fail to make a return on time. Once points have been accumulated up to a certain threshold a penalty will be charged for every subsequent late submission – the Government has yet to announce the penalty amount! The level of the penalties threshold will depend on how often a taxpayer is required to file a return e.g. a penalty charge will be made after incurring 5 points for monthly VAT Returns compared to 4 points for quarterly Returns.
Points are expected to have a lifetime of two years calculated on a monthly basis and points will be reset to zero after a period of good compliance. The new late submission penalty regime is accompanied by new rules regarding the late payment of tax liabilities. For more information on both these penalty regimes, please get in touch.
How can we help?
In order to ensure that this new method of record keeping does not cause disruption to our clients and their businesses, Saint & Co. have continued to keep up-to-date with the latest HMRC legislation. We have the necessary compatible software, which we have rigorously tried and tested, so that we can provide clients with all they need to meet this new digital requirement.
If you are VAT registered
- You need to address MTD now
- Preferably switch to digital accounting software from the beginning of your next financial accounting period
- Technological advances in digital software mean Saint & Co can efficiently and cost effectively maintain your accounting records digitally and produce and submit your VAT Returns. Click here to contact us for a quote
- Alternatively we can set you up with your own subscription to “Xero” [www.xero.com] and you can enter your accounting information to prepare your own digital VAT Returns
If you aren’t VAT registered
- You will not be directly affected by MTD before 2021
- However, in the interim period it is appropriate to future proof your systems as far as possible
- Paper records will not be sufficient in the future so transfer on to a digital accounting package, such as Xero, as soon as convenient to you
- If you currently maintain records on spreadsheet you need to acquire software which will allow tax returns and updates to be made directly to HMRC in future
- If you currently use accounting software, this may need to be upgraded to be digitally compliant with HMRC requirements