Are you ready for Making Tax Digital
The introduction of Making Tax Digital (MTD) is probably the biggest operational change to be introduced in the UK’s tax system in the last few decades. MTD will provide businesses with a modern, streamlined system to keep tax records and relay detailed tax information to HM Revenue & Customs (HMRC).
This idea is not new. The global direction of travel is towards ‘real time’ tax reporting for businesses, and it’s a matter of time before HMRC follows.
What are the immediate requirements?
As a starting point along the MTD road, from 1 April 2019, businesses with a turnover above the VAT registration threshold (currently set at £85,000) will need to keep specified digital VAT records (including a digital VAT account). They will also need to submit their VAT returns to HMRC digitally via an Application Program Interface (API) connection, a computer programme that stores information in one application or website to be shared with others. The VAT account must also be API enabled as HMRC may request to review the VAT account. Alternatively, businesses may choose to submit the VAT account on a voluntary basis (for example, to reduce their risk rating).
Businesses that exceed or expect to exceed the VAT registration threshold will need to consider:
· whether they may be exempt from the requirement to file returns electronically under MTD (charities, local authorities, government departments and overseas businesses will not be exempt from MTD for VAT – unless their taxable activities are below the VAT threshold)
· what records will need to be kept digitally
· what the digital VAT account should look like
· how to submit their digital VAT return in line with MTD requirements
· whether to submit their digital VAT account to HMRC
· penalties for late filing and payment of VAT, and for not keeping digital records or having digital links.
It is also worth noting that MTD requirements will be rolled out for all other taxes in 2020.