What is Making Tax Digital (MTD)?

Making Tax Digital is a key part of the government’s plans to digitise the tax system.  The objective is to reduce mistakes and streamline the sharing of data with HMRC.

From 1st April 2019, all business with a taxable turnover that exceeds the VAT registration threshold (currently £85,000) are required to store their VAT records digitally and submit VAT returns to HMRC via MTD compliant software.

Note: The ability to submit a VAT return via the HMRC portal is being removed.

When does it start?

The first mandatory MTD VAT returns will be for businesses with a VAT quarter which ends on 30th June 2019.

Most businesses will have received a letter from HMRC about MTD and you may have noticed a high volume of accounting software advertisements in the media.  However, do you realise that it applies to you too?  And what steps do you need to take to be compliant?

This blog aims to resolve some of the concerns you may have.

a4c’s Frequently Asked Questions on MTD

1. Will I automatically be registered for MTD?

No, you will need to sign up for Making Tax Digital for VAT with HMRC.

  • If a4c are already preparing and filing your VAT returns, then we will sign you up in plenty of time to file your next VAT return.
  • If you file your own VAT returns then you need to sign up yourself, see below.

2. How long does it take to sign up for MTD?

If you are signing up yourself, it takes around 1 hour to start the process and then once you’ve made the submission you will receive email confirmation 72 hours later.  This means that you shouldn’t leave it until your VAT returns needs to be filed as you may miss the submission deadline (visit https://www.gov.uk/guidance/sign-up-for-making-tax-digital-for-vat for more information).

3. Does MTD apply to me if I already use accounting software?

Yes, MTD applies to every VAT registered business.  You will still need to sign up for MTD but assuming your software provider is on HMRC’s approved MTD list then the VAT return preparation and submission should be straight forward, once the MTD link is in place.

4. I’ve read about a soft landing; does this mean I don’t have to comply right away?

No, everyone must start to file MTD VAT returns for quarters ending 30th June 2019 onwards.  The soft-landing means that HMRC will be lenient in relation to penalties on returns filed late, where there are technical problems.

5. I understand that MTD is mandatory but are there any benefits to business owners?

Making Tax Digital means that HMRC will only accept VAT returns sent using MTD compliant software, like Xero.

If you haven’t used accounting software before then you’ll be amazed at how much of the heavy lifting can be done for you; automation, intelligent machine learning and streamlined access will enable you to manage your books quickly and be confident in your numbers.

As Gold Xero Partners, a4c are experts in this software and would be very happy to give you a free, no obligation demo.

In the meantime, the key benefits to Xero software are:

  • Automation

From importing bank transactions to sending invoice reminders, with Xero the leg work is done for you.  Plus, because the software is cloud based you can access your records from any device (PC, laptop, tablet or smartphone).  Saving you time and keeping your business moving, even when you’re on the go!

  • Feel confident in your numbers

When Xero is combined with Receipt Bank, automated data extraction from your receipts and supplier invoices will ensure that the correct amount of VAT is reclaimed every time.  Also in Xero you can set up bank rules to ensure that VAT rates and rules are applied correctly and consistently.

  • Proactive accounting support from a4c

Software which is cloud based can be accessed by you and us, as your accountants, throughout the year.  This means we can give real time support and assist you in making key decisions which can help to grow your business or to save you tax.

Act Now!

If you are a VAT registered business and don’t have MTD compliant software in place then now is the time to act!

Speak to a member of the a4c team for more information on how Xero could help you to comply, whilst affording lots of other worthwhile benefits too!