Make sure your business is compliant with Making Tax Digital. We've produced some need to know information to provide clarity for our clients.
You may have heard about Making Tax Digital already. In
fact, if your business is VAT registered and your taxable turnover is more than
the threshold of £85,000, then you should definitely have heard of Making Tax
Digital (MTD) – because you should be complying with it.
If you haven’t heard of it, or aren’t sure if you’re
complying, read on. (Or if you’ve got concerns, get in touch right away).
What is Making Tax Digital?
Making Tax Digital is the government initiative to get all
forms of taxation online, with the submission of regular returns, the
monitoring of accounts and the making of more frequent payments.
HMRC hopes that all businesses and individuals will
eventually manage their entire tax affairs digitally, using software that helps
them reduce time and effort and get their taxes right.
The aim of MTD is to put an end to form filling and annual
tax returns, with all information sent digitally to HMRC at least four times a
year. These regular, automatic updates should ensure that businesses and
individuals have to deal with less admin and a reduced effort when it comes to
tax filing. More importantly, it should give everyone a greater awareness of
their own tax affairs – and any payments owed.
Who does Making Tax Digital affect?
Currently, MTD only affects VAT-registered businesses who
have taxable turnover greater than £85,000.
There are plans to extend MTD to both income tax and
corporation tax, but following consultations with businesses on the speed of
change, the government has delayed further introductions of MTD until 2021 at
Expect all tax returns to be exclusively digital in the
future. HMRC has made clear its intentions on this. But at present, businesses
only need to be concerned with VAT returns.
How to be compliant with VAT Returns
As of 1st April 2019, those businesses who Making
Tax Digital affects should have submitted their first VAT return using the new
If you didn’t, or you weren’t aware of the changes – don’t
worry. Research suggests there are lots of small businesses who are in the same
boat as you. But if this is the case, it’s important to act quickly and ensure
you are compliant as soon as possible.
To be compliant with the Making Tax Digital service, HMRC
states that businesses should “keep records digitally and use software to
submit their VAT Returns.”
In practice, this means businesses should be using some kind
of accounting software that’s compatible with MTD.
Specifically, this software has to meet certain
“the software which businesses use must be capable of
keeping and maintaining the records specified in the regulations, preparing
their VAT Returns using the information maintained in those digital records and
communicating with HMRC digitally through our Application Programming Interface
Fortunately, the vast majority of accounting software
complies with Making Tax Digital.
Does my business need software to be compliant with
Making Tax Digital?
The short answer is yes.
HMRC does state that spreadsheets can be used to keep
digital records and submit VAT returns if they meet technical requirements.
They must all be linked to your digital tax account.
In reality, this means that you’ll need a form of bridging
software, to make sure that your spreadsheets are compliant and match with HMRC
And if you’re using bridge software, you may find it’s much
simpler and more effective to use comprehensive accounting software instead.
You won’t have to worry about amending spreadsheets for technical reasons.
We can help advise you on the best software for Making Tax
Digital that works effectively with your business needs.
Will I be fined if I’m not compliant?
As Making Tax Digital is a new initiative, HMRC is treating
this first year as a soft launch. A grace period. It’s not currently on the
hunt for businesses who are uncompliant, ready to slap them with a big fine.
That said, fines can still be issued for late VAT returns or
if you are initially ignoring the new MTD regulations.
But as long you are doing your best to comply, and are in
the process of having all digital links and compatible software in place, then
penalties are unlikely.
To be on the safe side, let us help you make sure you’ve
correctly signed up to Making Tax Digital and have all the necessary
requirements in place and in use.
Call us now on 01270 335 030.
Making Tax Digital is the government initiative to get all forms of taxation online, with the submission of regular returns, the monitoring of accounts and the making of more frequent payments. ”