Making Tax Digital goes live in a few months. If you have heard the phrase “Making Tax Digital” recently and are wondering what it’s all about, this is a quick summary of the important details.
What is Making Tax Digital?
Making Tax Digital (MTD) is a UK government initiative which aims to make it easier for individuals and businesses to get their tax right and keep on top of their affairs. In future, tax submissions to HMRC will need to be done fully online, starting with VAT from April 2019.
How will I (a sole trader or business owner) be affected?
Many businesses and sole traders already use online or cloud software (such as Xero, which our practice recommends) for their accounts and HMRC submissions, and for them there will be very little change to their routine, if any. Most accounting software packages support the MTD changes (you can check HMRC’s list here to see if your software is included) and can provide specific guidance on whether you need to take any action.
I only use desktop software currently – will I have to move my accounts to the cloud?
If your business is above the £85k revenue threshold then yes, keeping digital records will be mandatory from 1st April 2019 (with a few exceptions – see below). However the records you are required to keep will not change, only your method of keeping them, which must be online. If you are below the threshold you are still encouraged to use MTD, as there are many benefits of keeping digital records, but it is not mandatory.
But my business arrangements are more complicated than most – what are the exceptions?
For a small minority of businesses that have more complex requirements, HMRC have made the decision to defer imposing MTD by 6 months until 1 October 2019. This applies to those that fall into one of the following categories: trusts, ‘not for profit’ organisations that are not set up as a company, VAT divisions, VAT groups, those public sector entities required to provide additional information on their VAT return (such as government departments and NHS Trusts), local authorities, public corporations, traders based overseas, those required to make payments on account and annual accounting scheme users.
Is only VAT affected?
For now, yes. The Making Tax Digital for Income Tax pilot is already available on a voluntary basis, but this, or any other digital tax submission, will not be mandatory for businesses until at least 2020.
If you’re affected by MTD and have any questions, feel free to drop us a line at Exonia.