Digital Tax:

Making Tax Digital (MTD) is a key plank in the government’s drive to digitise tax so that eventually individuals and businesses will no longer file an annual tax return. Currently, every individual and business can access to their personalised digital tax account, and HMRC says these are being regularly expanded and improved.

HMRC’s aim is to become one of the most digitally advanced tax administrations in the world, and as a result the government has announced the roll out for Making Tax Digital.

The programme has been delayed to give businesses more time to prepare, and they will not now be mandated to use the Making Tax Digital for Business system until April 2019, and then only to meet their VAT obligations. This will apply to businesses who have a turnover above the VAT threshold – the smallest businesses will not be required to use the system, although they can choose to do so voluntarily.

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HM Revenue and Customs (HMRC) last week published further information on Making Tax Digital (MTD) to support businesses and accountants in the run-up to the start of the mandatory MTD VAT service from April 2019.

This includes:

As part of MTD, businesses registered for VAT with a taxable turnover above the VAT registration threshold of £85,000 will need to keep VAT records digitally and file their VAT returns using MTD compatible software. This will start from their first VAT period starting on or after 1 April 2019.

Businesses with a taxable turnover below the VAT threshold will not have to operate MTD, but can still choose to do so voluntarily.

The VAT guidance provides information to customers and adds to amendments to the VAT Regulations made earlier this year. The notice also gives guidance on the digital record keeping and return requirements of MTD for VAT including:

  • Who needs to follow the MTD rules and from when.
  • What digital records businesses must keep, and a series of HMRC directions that relax these requirements in certain circumstances (such as where a mixed rate supply is made, where a third party agent makes or receives supplies on behalf of a business, and where a business uses a special VAT scheme such as a retail scheme or the Flat Rate Scheme).
  • How businesses must use software to keep digital records and file their returns from those digital records, including information on when programs do and do not need to be digitally linked in situations where a combination of software programs is used. Given that VAT registered businesses and their tax agents already use a wide variety of different systems and programs to produce their VAT returns, the notice includes a number of illustrated examples to show customers how to ensure their specific set up will be compliant with the regulations from April 2019.

Businesses above the VAT threshold are not required to use MTD for their VAT returns until April 2019 but HMRC has already started piloting the changes with small numbers of invited businesses and accountants. This will be widened out to allow more to join later this year. In the meantime, businesses can start to prepare now by ensuring they are keeping their records digitally and in accordance with the rules set out in the notice.

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