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Tax is a mandatory part of business and can sometimes be less than straightforward to calculate. New measures aimed at making it all a little easier are due to launch next year – what are the details?

Her Majesty’s Revenue and Customs (HMRC) is introducing Making Tax Digital for Business (MTDfB) for income tax, corporation tax and VAT, to make tax administration more effective, efficient and easier for taxpayers.

The first tax to become mandatory will be VAT, with a date being set for April 2019. A MTDfB pilot was launched in April 2018, and businesses can opt-in to this now, if they wish.

Who is affected?

VAT registered businesses with taxable turnover above the VAT threshold (£85,000 per year) will need to comply with MTDfB from April 2019.

This includes:

  • Sole traders
  • Partnerships
  • Companies
  • LLPs
  • Charities

It will be compulsory for every VAT registered business to comply with MTDfB, and it is anticipated that this will have to be done by April 2020. Businesses operating under the VAT threshold (£85,000 per year) can opt-in to MTDfB from April 2019, if they wish.

What is Making Tax Digital?

MTDfB is the digital recording and storing of business transactions as near to real time as possible. These transactions are then uploaded to HMRC using Application Programming Interface (API) software. This software is your accountancy or bookkeeping program.

Currently, only 12% of VAT returns are submitted to HMRC via third-party software – the other 88% are submitted via HMRC online services. This will no longer be available when MTDfB is compulsory.

Initially, it’s just the VAT records that need to be held digitally, but eventually it will include all income and corporation tax data. The first VAT return to be affected by
MTDfB will be the first VAT quarter starting on, or after, 1 April 2019. So if your VAT quarter ends are 31 March, 30 June, 30 September and 31 December, your first VAT quarter will be 1 April 2019 to 30 June 2019.

Making Tax Digital for Business

What software will I use?

HMRC will no longer be providing free software under MTDfB. Businesses will either have to buy and use HMRC approved third party software, or ask their accountant to submit the information to HMRC for them.

Are spreadsheets digital?

HMRC have been asked this question numerous times, and the answer is yes – spreadsheets meet the MTDfB requirements.

However, there must be no manual break between the spreadsheet and the submission to HMRC, and it must be able to receive information from HMRC. Therefore there will need to be software that automatically connects the two. However, anyone wanting to continue to use spreadsheets needs to be aware that, as of now, there is no HMRC approved software to do this, and it is not clear when such software might become available.

Deadlines

The VAT return frequency, filing deadlines and payment deadlines will not change. The return must be filed, and payment made, one month and seven days after the VAT quarter end.

Penalties

There will be penalties for not adhering to the new digital record keeping provisions but for a short period – HMRC has proposed one year – they won’t apply penalties in certain circumstances. The usual penalty regime for late filing and payments will apply.

If you need help with VAT Irwin Mitchell’s accountancy team can help you with your VAT and MTDfB obligations, including helping you to register with HMRC, complete VAT returns, and advise on your VAT liability and payment dates. We also have tax lawyers who can advise on VAT.

Key Contact

Liz Beadsley