Making Tax Digital For VAT
In April 2019, the Making Tax Digital (MTD) initiative, introduced by HMRC, came into effect. It has fundamentally changed how businesses in the UK interact with the UK tax system.
HM Revenue & Customs (HMRC) is making fundamental changes to the UK tax system. This includes a drive for greater transparency and the use of data, which you can read about in HMRC’s ‘Making Tax Digital for VAT’ paper.
If you’re still getting to grips with MTD since it was mandated in April, you’re in the right place. Keep reading to make sure you’re compliant!
What Is MTD?
The Making Tax Digital (MTD) initiative requires VAT-registered businesses with taxable turnover above the VAT threshold to keep digital VAT records and file their returns using software compatible with MTD from April 2019.
The purpose of MTD is to simplify the tax system and make it easier for you to comply with your obligations.
You don’t need to take any action at this stage if you already use approved software or accounting systems that are compatible with MTD, or if you are an online trader filing your VAT return online.
What If I Don’t Have a Computer?
Businesses that do not have a computer can still submit their VAT return online using compatible software. It is possible to prepare your VAT records on paper or a spreadsheet and then transfer the figures into compatible software to submit your return online.
The software will provide a secure link for you to upload the data that has been prepared offline.
What About Income Tax and Corporation Tax?
Income tax and corporation tax are not explicitly covered by MTD, but the government has announced plans to mandate MTD for both taxes. For landlords and sole traders with gross income over £10,000, MTD will be introduced in April 2024. It’ll be phased in gradually from that point on.
The consultation for Making Tax Digital for Corporation Tax suggests that HMRC could launch a pilot in 2024.
What Information Must You Record Digitally?
You must record your financial data digitally, including your sales and purchases. In practice, this means that you need to record your financial records digitally by keeping them in digital form instead of paper form. This allows you to submit your VAT return directly from accounting software.
What Does It Mean For VAT Compliance?
What does it mean for VAT compliance?
Making Tax Digital is not a new tax. You won’t have to pay any extra tax on the goods or services you buy. The only thing that will change is how you record and report information about your transactions.
It is not a tax on business, but data capture and reporting are an important part of VAT compliance, so this is where most businesses will focus their attention when it comes to making sure they’re compliant.
Does MTD Change How My Tax Is Calculated?
MTD does not change how you pay your VAT bill, nor does it change the way in which you calculate the amount due on a monthly basis. Instead, MTD only affects how small businesses and individuals keep their accounting records. This is done by using an online platform provided by HMRC called Connect (formerly known as Real-Time Information).
Making Tax Digital for VAT has fundamentally changed how businesses in the UK interact with the UK tax system.
Do You Need Help With Making Tax Digital?
Making Tax Digital for VAT has been a significant challenge for businesses. As of April 2022, it was mandated for all UK businesses registered for VAT. If you feel like your business may not be compliant, or you have any questions at all, Countplus is here to help.
Get in touch with us today, or browse our blog for more information and advice on all things business.