Making Tax Digital (MTD)

Making Tax Digital is the UK government’s initiative to make the HMRC the most digitally advanced tax collectors in the world.

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Making Tax Digital is the UK government’s initiative to make the HMRC the most digitally advanced tax collectors in the world.

What is MTD?

It is a scheme that requires online filing and payment of taxes as well as the keeping of digital records. Eventually, every individual will be part of the scheme but for now only Making Tax Digital for VAT (MTDfV) has a start date of 1 April 2019, with other taxes being subject to MTD in 2020 at the earliest.

It is not just a method of filing your VAT return digitally however, you are required to store some of your VAT information digitally and if you don’t use accounts software such as Sage Accounts Software for Making Tax Digital, which is HMRC compliant, then you must ensure this software is digitally linked.

Why MTD?

HMRC has identified that this initiative will save the government £9billion a year, just by eliminating VAT calculation errors

What do I need to do?

There are a number of checks you should make to ensure you are MTD compliant:

  • Check your turnover. If your VATable turnover for the year is above the VAT Threshold of £85,000 then you cannot make your submissions via the HMRC website form 1 April 2019
  • If you are approaching the VAT threshold during or after the roll-out of MTD, then you must prepare to submit your VAT Returns digitally
  • Unless you have a deferred start date for Making Tax Digital for VAT of October 2019 (you will have received your letter from HMRC by 1 April 2019 if you have been granted this deferment) then you need to comply to the MTD for VAT from 1 April 2019. Deferred organisations include:
    • Businesses who pay their VAT on account
    • Annual accounting scheme users
    • Trusts
    • Not-for-Profit organisations (that are not incorporated as a business)
    • VAT divisions & groups
    • Certain Public sector entities
    • Local authorities
    • Public corporations
    • Traders based overseas
  • If you are using Sage Accounts software then to make sure it is MTD compliant then you should either:
    • Have the cloud version of Sage Accounts Software (which is subscription based) as this has the MTD module built in

    • Purchase the MTD module which, for an annual fee can make your version 24 or version 25 of Sage Accounts (Sage Accounts Software v24 2018 or Sage Accounts Software v25 2019) compliant
  • If you are calculating your VAT using spreadsheets or manual records then you will need to replace this process with a software that is suitable for submitting digitally to HMRC, such as Sage 50 Accounts for MTD
  • If you think you may be exempt or eligible for a deferral then you should contact HMRC as soon as possible. Some exemptions may be if the individuals concerned have religious beliefs, or on the grounds of age, disability, remoteness or company insolvency which renders then unable to make digital submissions.
  • Do you raise paper-based paperwork e.g. sales invoices? If so, although you may not have to cease this, you will have to transfer this data to your MTD-compatible software at some point.
  • If you are on an alternative VAT Scheme such as Flat Rate VAT, Retail VAT, or Margin VAT scheme, or Group VAT then you should speak to your accountant about your current processes

Which Making Tax Digital Software do I need?

You will need to use software thats compatible with the HMRC Making Tax Digital (MTD) programme. This software must allow you to keep digital records relating to your VAT and be able to communicate with HMRC’s computer software so you can file your returns.

Many businesses will be already keeping their accounts records using software. The difference with Making Tax Digital is that the software must be able to keep and maintain the records specified by HMRC, prepare their VAT Returns using the information maintained in these digital records and communicate with HMRC digitally via an Application Programming Interface (API) platform.

If your digital records are up to date, MTD suitable software will be able to collate and prepare your return for you. It will then show the return to you and ask you to declare that it is correct and confirm that you want to submit it to HMRC. Once you have submitted your return you will receive confirmation through your software that it has been received.

HMRC will not be providing any free software for Making Tax Digital reporting for businesses and sole traders, however Sage 50 Accounts Cloud software or Sage 50 Essentials Cloud software will be MTD compliant. If you have desktop software, such as Sage 50 Accounts V24 or Sage 50 Accounts V25 then the data sharing is not possible without the MTD module.

It may be possible to use a bridging tool (or bridging software) to assist in the transition from your other methods of calculating VAT, such as spreadsheets, however as this software does not comply with the other requirements of MTD such as digital record keeping, and it doesn’t ensure your system is digitally linked to the HMRC API platform, you should only use this as a stopgap measure.

If you would like assistance in upgrading your current Sage 50 Accounts, Sage Line 50, Sage Essentials or Sage Instant Accounts software to MTD compliant software then contact us for further information.

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