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Updated: 7th May 2020

Making Tax Digital: Are You Ready?

Making Tax Digital was introduced for the majority of VAT-registered businesses in the UK from April 2019, but some businesses, particularly those with a more complex operational model or structure, have benefited from a deferred commencement date of 1st October 2019. As this date is rapidly approaching, Julie Palmer, partner at RBR Advisory, explains what the Making Tax Digital initiative is and how businesses need to be preparing for its implementation.

What is Making Tax Digital?

Making Tax Digital (MTD) is the overall system that’s changing the way businesses submit information, returns, and reports to HMRC. Legislation introduced by the government now requires businesses to use specific processes to submit VAT returns, and keep VAT records in a certain way. MTD is not optional and all businesses must comply with these regulations even if this means changing their current methods, processes, or software package.

VAT-registered businesses with a taxable turnover above the current threshold of £85,000 must comply with this new legislation, but certain businesses have been informed by HMRC that their deadline for MTD registration has been deferred to October 2019.

Which businesses have been deferred?

Due to their complexity compared with other businesses, some organisations have had their deadline deferred to 1st October 2019. These include, but are not limited to, the following types of business:

  • Local authorities
  • Public corporations
  • VAT divisions and groups
  • Non-incorporated not-for-profit organisations
  • Trusts
  • Those using the annual accounting scheme

New VAT requirements for deferred businesses

Essentially, Making Tax Digital affects the way you keep your VAT records and how you submit your VAT returns. You’ll need to keep digital records and submit VAT returns digitally using software compatible with HMRC.

The new rules apply whether you send your returns to HMRC on a monthly, quarterly, or annual basis. Additionally, if you use an in-house bespoke record keeping system you may need ‘bridging software’ to connect you to HMRC’s own systems.

"You need to register online for Making Tax Digital for VAT, but if you pay by direct debit make sure you sign up after your last direct debit has left your bank account."

Registering for Making Tax Digital

You need to register online for Making Tax Digital for VAT, but if you pay by direct debit make sure you sign up after your last direct debit has left your bank account. Also be aware that if you pay your VAT liability by direct debit you should register at least seven days before the latest return is due. Once you’ve signed up you will no longer be able to submit your return using the old method.

Digital record keeping for VAT

Although there are no additional records to keep under the Making Tax Digital regime, you will need to keep your VAT records fully digitally. For each VAT supply you’ll need to record the:

  • Tax point
  • Net value
  • Rate of VAT
  • Business name and registered address
  • VAT registration number
  • VAT accounting scheme if you use one

Making Tax Digital for deferred businesses

In summary, to be ready for the October 2019 deferred VAT deadline you’ll need to:

  • Research HMRC compatible software and decide on the best software package for your business
  • Register your business for Making Tax Digital for VAT
  • Authorise the software you’ve chosen – if you’re not sure how to do this, get in touch with your software provider
  • Seek professional assistance as required
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