Making Tax Digital for VAT (MTD)
What is Making Tax Digital (MTD)?
MTD is the Government’s initiative to digitise the tax system. The first mandatory stage, MTD for VAT, comes into effect on 1st April 2019.
All businesses that meet the MTD criteria must keep digital records and will also need to submit their VAT returns to HMRC digitally via an Application Programming Interface (API) platform by using functional compatible software. You will no longer be able to use HMRC's portal to submit your VAT return.
What is the MTD criteria?
The criteria for MTD is:
When will Making Tax Digital (MTD) apply to me?
All businesses that meet the MTD criteria must keep digital records from 1 April 2019.
Submissions for MTD for VAT will apply for the first VAT period starting on or after 1 April 2019, or the first VAT period starting after the date you cross the VAT threshold.
HMRC give the following examples:
Example 1 - Existing business with taxable turnover above the VAT registration threshold on 1 April 2019
A business submits a quarterly return covering the period 1 March to 31 May 2019. The business taxable turnover exceeds the VAT registration threshold and therefore the business will need to comply with Making Tax Digital rules for the period starting 1 June 2019.
Example 2 - Business with a taxable turnover above the Making Tax Digital threshold at the point they need to register for VAT
A business that is not registered for VAT is required to register from September 2019 because the taxable turnover over the previous 12 months has exceeded the VAT registration threshold. The business must follow the rules in this notice for all VAT Returns they are subsequently required to make as their taxable turnover was above the VAT threshold when they were required to register.
Example 3 - VAT registered business with taxable turnover below Making Tax Digital threshold until November 2019
A business is registered for VAT but its taxable turnover is below the VAT registration threshold until November 2019. The business must follow the rules in this notice for any VAT period that starts on or after 1 December 2019 as its taxable turnover now exceeds the VAT registration threshold.
Is anyone exempt from Making Tax Digital (MTD)?
No. However, HMRC have confirmed that the following categories who meet the criteria will be deferred for six months until 1st October 2019:
You do not need to sign up for Making Tax Digital or apply for an exemption if either:
What is MTD functional compatible software?
MTD functional compatible software is a software program, or set of software programs, products or applications, that must be able to:
What is digital record keeping?
All VAT registered businesses must keep and preserve certain records and accounts. Under MTD for VAT, some business records must be kept digitally, with functional compatible software. Some records are also required, by law to be kept in original form to enable VAT recovery, such as C79 import certificates.
The following data must be kept digitally:
What is a ‘digital link’?
A ‘digital link’ is one where a transfer or exchange of data is made, or can be made, electronically between software programs, products or applications. That is without the involvement or need for manual intervention such as the copying over of information by hand or the manual transposition of data between 2 or more pieces of software. In other words, HMRC does not want you to re-key any entries, or 'cut and paste' data.
A link is digital if it links software electronically in such a way that it remains possible drill down into the data. For example, importing a CSV file allows you to drill down into the original file and review its data, whereas taking a spreadsheet total and adding just that total to another software package does not allow you to drill down into the original spreadsheet because it is not digitally linked.
There must be digital links between software programs or applications where more than one part of the software makes up the digital data submitted to HMRC. For example, you cannot enter data into a spreadsheet, then manually copy this into a different bit of software. There is no digital link.
HMRC accept that digital links include:
There is a 'soft landing' on digital links between bookkeeping, accounting or spreadsheet software where linking is not required for the first year.
I meet the criteria for MTD. Does HMRC automatically enrol me for this?
The answer is no. MTD is an opt-in process and all businesses must ensure that they have enrolled if they meet the criteria set by HMRC. Simply using compatible software to submit returns is not sufficient if you have not actively opted in. Either the taxpayer or their agent can sign the taxpayer up to MTD.
You can find more information using the links below:
Please contact us below if you would like information on how we can ensure that you are MTD compliant.