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VAT and Making Tax Digital

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VAT and Making Tax Digital

From April 2019, Making Tax Digital is officially and finally launched. When it goes live, VAT-registered businesses and those whose turnover is above £85,000 will have to start using it.

But what is it and what do you need to know?

 

What is Making Tax Digital?

Making Tax Digital is a gradual migration of many of the personal and business taxes paid to HMRC onto a new reporting and collection system. The roll-out has been plagued with difficulties since the idea was first announced a few years ago. From April 2019, all VAT-registered businesses will move from the current system of reporting via Gov.UK to the Making Tax Digital platform.

 

Who’s included in the first wave of migration to MTD?

Businesses which have a taxable turnover about the VAT threshold will, from April 2019, have to keep all records digitally and use compatible software to send those returns to HMRC. At launch, the only information that has to be provided is the 9-box system currently in use. From April 2020, VAT records must be kept in much greater depth and submitted to HMRC.

MTD is available for companies below the VAT threshold on a voluntary basis.

 

When is your first MTD VAT payment?

All VAT-registered business will be start their first MTD VAT quarter depending on their current VAT cycle. At time of writing, this is HMRC’s proposed timetable.

 

When you file your VAT

Start of first MTD VAT quarter

Dec/Mar/Jun/Sep

1st April 2019

Nov/Feb/May/Aug

1st June 2019

Oct/Jan/Jul/Oct

1st May 2019

 

For businesses on the annual VAT scheme, their MTD year starts at the first annual account period after 1st April 2019.

 

Is the software ready yet?

The software required to interact with the new MTD VAT system is expected to be ready and functional a few months before April 2019. This is our latest understanding of the situation.

 

Software

Latest information

Sage

For users of Sage 50 or Sage50cloud Version 23, there’ll be no MTD compatibility because the company is ending support for the software in October 2018. If your business runs this software, you’ll need to upgrade. All versions of Sage 50 will not be MTD compatible – only Sage50cloud Accounts (except Version 23) will be updated. Sage are apparently releasing bridging software for clients who don’t want to swap but you’ll need to stay in contract with them to benefit.

Quickbooks

Intuit report that all customers on the current desktop version of their software will receive updates for MTD compatibility.

Cloud software

Quickbooks Online completed its first ever MTD tax filing back in May. We expect that every cloud-based accounting and bookkeeping platform will amend their software for MTD.

Bespoke software

You should contact your software supplier without delay.

 

For companies still using spreadsheets, HMRC is meaning to provide bridging software which will make the information on a spreadsheet compatible with the MTD system using something called an API (Application Program Interface”. There is worryingly little news on bridging software just at the moment but we’ll keep you informed as soon as we have some definite news on it.

 

What information does the new MTD VAT system require you to provide?

For each sale you make, you need to record the time of supply, the value of the sale, and the rate of VAT charged.

For every purchase you make, you need to record the time of supply, the value of the sales including VAT not claimed by your company, how much input VAT you’re claiming back, and if there is more than one thing being supplied on an invoice, the totals from that invoice.

You must keep all records digitally, report this information every quarter to HMRC using their “digital tax accounts”, and submit a separate year-end declaration through the same system.

 

Income tax is next for MTD

In response to concerns expressed by both businesses and accountants, the Government say that they do not wish to extend MTD to cover reporting of other taxes until they are happy that the VAT system is working well enough.

The next tax earmarked for the system is income tax. Public testing for this began in March 2018 and the test service is currently available for taxpayers who earn income from UK property investments.

 

Get help from the team

For help and support on VAT and MTD, please call us today on 0800 470 4820 or email us at info@tfmcentre.co.uk