What is Making Tax Digital (MTD)?
Making Tax Digital is a key regulatory change put in place by HM Revenue and Customs (HMRC), which looks to reform and modernize the UK tax system. The initiative was introduced to ensure the UK tax system is efficient and user friendly for tax payers. It looks to ensure digitally stored records are kept up to date and captures the correct information, and as a result reduce errors on declarations made to HMRC. Other areas such as Income Tax and Corporation Tax, have been put on hold until 2020 at the earliest.
What it means for your business
For VAT periods starting on or after April 1, 2019, all UK businesses above the £85,000 VAT threshold will need to keep records digitally and submit VAT returns to HMRC using MTD-compliant software. Currently, less than 15% of businesses use online software to submit VAT returns, therefore MTD will have a significant effect on UK VAT registered businesses. Businesses with a taxable turnover below the VAT threshold of £85,000 will not need to operate under MTD rules as yet, however, can do so voluntarily.
Under MTD rules, some records must be retained digitally under functionally compatible software for up to six years. Functionally compatible software must be able to keep records in a digital form, create and provide VAT returns from these records, and receive information from HMRC via an API platform. If you do not currently use software for your accounting records, or your software is not MTD-compatible, you will need to consider what software is suitable for your business requirements.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.