Making Tax Digital: Is your business prepared for the changes?
Making Tax Digital (MTD) is the new online digital tax system for UK businesses who have hit the sales threshold of £85,000. Announced in July 2018, HMRC amended the existing 1995 VAT regulations to a new online software, which is due to come into force in Spring 2019.
For small and medium businesses, preparing for the new changes is vital to ensure compliance with the new VAT system.
What is Making Tax Digital?
As the name suggests, HMRC will be introducing a new digital online tax system for most UK businesses who are or need to be VAT registered. This will see an end to paper based accounting.
VAT registered businesses with a taxable turnover above the VAT registration threshold of £85,000 will need to keep records in digital format and file their VAT returns using the new software.
When do the rules start?
The Making Tax Digital Rules Apply from 1st April 2019
If your taxable turnover is above the VAT registration threshold you must adhere to the Making Tax Digital Rules unless
- You deregister from VAT
- Meet other exemption criteria
Who does it apply to?
Businesses with a taxable turnover that have never exceeded the VAT registration threshold (£85,000) will be exempt from making tax digital.
You will need to monitor your sales, as you will need to register once you have hit or crossed the threshold of £85,000.
What do existing businesses with a taxable turnover above the VAT registration threshold on 1 April 2019 do?
- Submit a quarterly return covering the period 1 March – 31 May 2019
- Those over the threshold will need to comply with Making Tax Digital Rules for the period starting 1 June 2019
Once you're registered for Making Tax Digital
- You must keep and preserve certain records and accounts
- Some of these records must be kept digitally within ‘functional compatible software’
Find out more about our software S-VAT which can help you with this.
If you are using the flat rate scheme:
- You do not need to keep a digital record of your purchases unless they are capital expenditure goods on which tax can be claimed
- You do not need to keep a digital record of the relevant goods used to determine if you need to apply the limited cost business rate
- Businesses who have exceeded the threshold and obligated to register for VAT will no longer be able to keep manual records
- Digital records must now be maintained with the ‘functional compatible software’.
- MTD is set to take place on 1 April the just after the proposed date to leave the EU
- It is only for businesses who have hit or exceeded the sales threshold of £85,000