Making Tax Digital (MTD) is a new government initiative which transforms the way tax returns are submitted to HM Revenue and Customs (HMRC). HMRC want ongoing information with the aim to streamline tax administration, specifically the calculation of benefits, collection of tax revenues and tax enquiries, by using actual/current data rather than estimates that need revising well after the year end.
Following the introduction of RTI (Real time information) reporting of payroll, whereby all payroll payments need to be reported to HMRC on or before payday, the new MTD initiative aims to collect all income data more regularly.
VAT registered business have become the first with compulsory MTD rules, but the plan is for expansion to all businesses and all income.
We offer a consultancy service to help you set up new systems and check your returns for accuracy before filing. Monitoring what has been submitted about you, will also become more and more valuable as the scope of MTD expands to the preparation of personal tax returns.
Who does MTD currently apply to?
Since 1st April 2019 digital reporting has become compulsory for all VAT Registered Businesses with a turnover over £85,000.
For VAT periods starting after that date, maintaining paper records and typing the figures into the HMRC portal no longer meets the requirements of tax legislation. Bookkeeping must now be kept digitally and returns have to be submitted electronically from those records.
You can sign up for MTD and start submitting VAT returns now, even if your turnover is under the £85,000 threshold, but you won’t be able to leave once you have joined.
Is your existing bookkeeping software MTD compliant?
HMRC do not provide software for MTD submissions, so you will need to choose a comprehensive online software package that is MTD compliant.
To be compliant, software must be capable of maintaining digital records, preparing VAT Returns from those digital records and communicating with HMRC digitally through their Application Programming Interface (API) platform.
There are many VAT schemes which still require personalized calculations. Spreadsheets that meet HMRC’s technical requirements can still be used but require specialist ‘bridging’ software to upload the data to HMRC.
Which software should I use?
At Firestone we primarily use QuickBooks Online accounting software as it was tested during the HMRC pilot and is hence at the forefront of MTD.
We can spring clean your bookkeeping systems and provide software training to make sure that you are correctly set up. We can also help with HMRC registration and verify your returns prior to submission.
You will need to re-register with HMRC at least 5 days after your last non MTD VAT return is completed and at least 15 days prior to your first MTD submission.
MTD – Personal Tax
Anyone can sign-up for an HMRC Gateway account now, and view a sample of what HMRC have on record for them. However, content is patchy and inconsistent as it is not yet compulsory.
Examples of services which may be available in the future:
- Personal payroll– individual payslips, total income
- Tax coding – notices issued, ability to choose your own tax code
- Personal tax – tax bills due, calculations, submitted returns
- Pensions – forecasts, targets
MTD – Guinea-pigs
HMRC are currently running a live pilot to test and develop MTD for personal income tax i.e this is the plan for all in the future. If you are self-employed or a landlord, you can volunteer to join the MTD pilot.
You will be required to keep digital business records and send regular income tax updates to HMRC instead of filing a Self-Assessment tax return. Your digital account will show an estimate of taxes owed and may give you the option to voluntarily pay your taxes as you go.
In the future, it is likely that you will be required to make quarterly tax payments.
MTD – Corporation Tax
The long term aim is for all UK business to file quarterly profit reports, however HMRC are still a long way off.
HMRC have published an information pack available at:
VAT Notice 70022 – Making Tax Digital For VAT
Contact us if you have any questions or would like help setting up your systems for MTD.