What is Making Tax Digital?

Making Tax Digital was first announced in the March 2015 Budget as part of the government’s plan to modernize the tax system, making it easier for businesses and individuals to deal with their tax affairs.

It is a massive project, which will insist that most businesses, including sole traders and landlords, keep their accounting records using computer software. The software will automatically update HMRC with relevant data on business income and expenses on a quarterly basis. Essentially, MTD for VAT means businesses must use accounting software that can connect to HMRC’s systems for the purposes of filing a VAT Return (or use some kind of computerised accounting process that can do so).

This will result in a streamlined system and see the end of the annual tax return, transforming tax administration so it is more effective, more efficient and easier for taxpayers.

The first businesses to be affected were those with a turnover above the VAT threshold of £85,000, these businesses have been required to keep digital records for VAT purposes since April 2019.

VAT & Making Tax Digital April 2022

Starting in April 2022, all VAT registered businesses must follow Making Tax Digital rules, this means that you will no longer be able to submit your return manually. All VAT registered businesses will now need to use HMRC recognised MTD software to keep digital records and file VAT returns.

When will it affect me?

HMRC have recognized that many small businesses would need time to prepare for the changeover and have revised the timetable to the following:

April 2019, businesses above the current VAT threshold of £85,000 will be required to maintain digital records – but only for VAT purposes.

April 2022, all VAT registered businesses must comply with Making Tax Digital for VAT.

April 2024, Self-employed businesses and landlords with annual business or property income above £10,000 will need to follow the MTD rules for Income Tax from 6th April 2024

2026, Making Tax Digital for corporation Tax will not be introduced before 2026

How will it work?

The requirement for digital records will be completed via specific software, which will link directly with HMRC for the purpose of submitting the data to them.

Whilst this may include spreadsheets, there will be no method of directly uploading data to HMRC from the spreadsheets, it will need to be uploaded through approved accounting software that has been linked with HMRC.

You should note that using MTD compatible accounting software doesn’t automatically mean that you are compliant. You will need to register for MTD for VAT and activate the option within your accounting software as well as authenticate with HMRC’s computers. HMRC have provided a list of compatible software.

What records do businesses need to keep digitally for MTD for VAT?

You will need to keep the following records digitally

  • The business name and address of your principal place of business
  • Your VAT registration number
  • Details of any VAT accounting schemes that you use
  • Most businesses will need to record for each invoice the time and date of supply, the net value and the VAT rate used to calculate the VAT

Some businesses may need to keep more or less information depending on their  VAT scheme and circumstances.

Help with Making Tax Digital?

We fully understand what is required to manage your business records digitally and have spent time developing the right support services to help you through this period of change and to ensure that you understand what is required to manage your business records digitally.

If you are still using paper-based records you should seriously consider changing to a digital system soon, making an easier transition to digital reporting when it is introduced.

We can offer support, training or a bookkeeping service which will ensure that you comply with all aspects of Making Tax Digital.

For more information on how we can help you and your business, please download our guide or call us on 01623 238523.

Download Making Tax Digital Guide