The Morris & Co Guide toMaking Tax Digital for VAT

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What is Making Tax Digital?A GUIDE TO MTD

Keeping digital records and providing updates to HM Revenue & Customs (HMRC) directly will help reduce errors, cost, uncertainty and worry. MTD is designed to get all tax records online and up to date, so they are accessible to both taxpayers and HMRC. Quarterly submissions of accounts will then be made to HMRC to give a snapshot of business income and expenses.

As part of MTD, businesses registered for VAT with a taxable turnover above the VAT registration threshold of £85,000, will need to keep VAT records digitally and file their VAT returns using MTD compatible software. This will start from their first VAT period starting on or after 1 April 2019.

For example, if your business submits VAT returns for calendar quarters, you will need to comply with the MTD rules for the period ending 30 June 2019 onwards. Digital records will also need to be preserved in MTD compatible software for up to six years.

There are four foundations of MTD

1. Better use of information To help taxpayers by not asking them to supply HMRC data that it already has, or will be able to get elsewhere. This could include banks, and other governmental departments.

2. Tax in real time Access to a Digital Tax Account (DTA) which should provide a live view of current liabilities.

3. One complete picture “A comprehensive financial view within the DTA”.

4. Digital interaction with customers Allowing customers and their agents to interact at a time that suits them. This includes digital communication, and an ability to link bookkeeping software to HMRC systems.

Making Tax Digital (MTD) is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs - meaning the end of the annual tax return for millions.

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MTD pros vs consA GUIDE TO MTD

■ Rid the system of excessive form filling.

■ Avoid unnecessary time delays associated with the paper-based system.

■ Facilitate more ordered and regular submission of tax requirements.

■ HMRC believes it will reduce the chance of deadlines being missed.

■ Prevent penalties being incurred.

■ Burden of having to think about tax far more often.

■ Additional admin tasks requiring the use of compatible apps and software.

■ People may struggle to adhere to legislation.

■ Increased fines for those failing to perform tasks correctly (a new penalty point system will be introduced as part of digital tax submissions)

■ Instead of paying after the tax year has finished the government will require that your tax requirements are updated in ‘real time.’

PROS

CONS

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MTD for individualsA GUIDE TO MTD

For any return commencing on or after 1 April, 2019 you will no longer be permitted to submit your VAT return through your government gateway account. Instead, you must use software which is able to communicate with HMRC via an Application Programming Interface (API).

This applies to sole traders, partnerships limited companies, charities and any other VAT registered entity whether UK resident or established overseas. Those on the annual accounting scheme will come into MTD on the start of the first annual accounting period starting after 1 April 2019.

You already file VAT returns quarterly, so what is the difference?

At present, VAT returns are submitted with information contained in boxes 1 to 9; there is no underlying information submitted to HMRC to support those figures. After MTD, the underlying details will be available to HMRC in digital format, which will enable them to scrutinise the data in a way that has never been possible before.

Key datesFrom 1 April 2019MTD for VAT for all registered businesses with over £85k turnover arrives.

Not before 2020 ■ Corporation tax ■ Personal tax ■ Capital gains tax

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MTD for businessesA GUIDE TO MTD

A business within the scope of MTD must use ‘functional compatible software’.

This means a ‘software program or set of compatible software programs which can connect to HMRC systems via an Application Programming Interface (API)’.

This software will allow the organisation to maintain digital business records and file relevant VAT information electronically.

Our understanding is that there will eventually be three different types of MTD compliant software:

■ Software packages that can be used to keep digital records and file returns via HMRC’s API e.g. Xero, FreeAgent, SageOne.

■ API enabled spreadsheets – spreadsheets with an inbuilt function allowing them to file returns via HMRC’s API.

■ Bridging software which can take return information from an existing spreadsheet and submit this to HMRC via their API.

A spreadsheet on its own will not qualify as MTD compliant. Where a spreadsheet is used the relevant data must be digitally transmitted from the spreadsheet or other source where the digital records are kept, directly to HMRC.

The summary information for completion of the VAT return must not be physically re-typed into another software package. Submission dates and payment dates of VAT will not change.

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Getting prepared for MTDA GUIDE TO MTD

HMRC has stated that ‘functional compatible software’ is a software programme that must be able to:

■ Record and preserve records in an electronic format;

■ Provide to HMRC information and returns from the electronic records in an electronic format using the Application Programming Interface (API) platform and;

■ Receive information from HMRC.

For each supply you make you must be able to record;

■ The time of supply;

■ The value of the supply and;

■ The rate of VAT charged.

You must also have a record of the outputs value for the period split between standard rate, reduced rate, zero rate, exempt and outside the scope outputs.

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Getting prepared for MTDA GUIDE TO MTD

For each supply you receive you must be able to record;

■ The time of supply;

■ The value of the supply including any VAT that is not claimable by you;

■ The amount of input tax that you will claim and;

■ If more than one supply is on an invoice you can record the totals from the invoice.

The minimum data you will be required to keep digitally will include invoice date, invoice value, income or expense category and deducted amount / percentage for expenses. VAT returns submitted under the MTD rules will need to include a much wider range of information than currently required.

Additionally, the new rules will include a facility to submit supplementary data to HMRC, for example, additional information in support of a VAT repayment return.

The expectation is that improving access to data will speed up the returns system, allowing HMRC to process VAT refunds and deal with other queries faster and more efficiently.

Will there be penaltiesif I do not use MTD?

HMRC has confirmed that the penalties for failure to keep digital records will come into force immediately from April 2019, while there will be a grace period for those who file late. Penalties for late filing will come into force in April 2020.

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How Morris & Co can helpA GUIDE TO MTD

You shouldn’t think of Making Tax Digital as just another obligation- see it as an opportunity to regularly check income, expenses and profit – which will your help you and your business make better financial decisions.

The time is now!You can make the switch to MTD now, and with the deadline fast approaching, it’s worth getting procedures in place to ensure a smooth transition.

Change can often seem daunting, especially if it requires you to adopt new technology. However, quarterly tax filing could actually lessen your workload. And by updating your accounts more often, you’ll be able to react faster to business opportunities and threats.

Morris and co are ICAEW accredited Chartered Accountants and we specialise in acting for a range of businesses, from franchises and opticians to start ups and limited companies.

We also have vast experience with consulting and training to facilitate your transfer to new cloud based software required for MTD.

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How Morris & Co can helpA GUIDE TO MTD

Morris & Co has long recognised that our clients require differing levels of service and involvements from us. Making Tax Digital is no different and therefore we have put together three different solutions to help you satisfy the requirements.

The options are:

1. You or your bookkeeper use Making Tax Digital compliant software to record your transactions and you self-manage your Making Tax Digital requirements.

2. Morris & Co can provide training on cloud based software such as Xero, FreeAgent or SAGE One to help you get up and running with the software in order for you to self-manage your Making Tax Digital requirements.

3. Morris & Co can carry out your bookkeeping and fulfil your Making Tax Digital requirements.

If you’d like to talk to us more about one of the options above, or for some further advice on getting ready for Making Tax Digital, please contact Desirie Lea on 0151 348 8400 or ddl@moco.co.uk

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A GUIDE TO MTD

Morris & Co Chartered Accountants

mail@moco.co.uk0151 348 8400

www.moco.co.uk/services/making-tax-digital