Ask the experts – we answer your questions on making tax digital (MTD)
The first phase of the Making Tax Digital (MTD) initiative is drawing closer. It’s less than a year until UK businesses that are VAT registered and above the threshold will be required to keep, and submit their records, to the HMRC digitally.
Even so, there’s still plenty of confusion in the market around what MTD means for businesses, well don’t worry, we’ve got it covered.
What is Making Tax Digital?
MTD is designed to make it as easy as possible for individuals and businesses to get their tax right and as well as simplifying the HMRC submission process.
This first phase of the MTD initiative only concerns VAT reporting.
Key Points on the impacts on MTD are;
- Only businesses with a turnover above the VAT threshold – currently £85,000 – will have to keep digital records and only for VAT purposes.
- File their VAT returns via MTD enabled software, the software must use HMRC’s API platform to submit information to HMRC (think Sage or Xero)
- Keep records in a digital form, such;
- Date of transaction
- The amount
- A description
- The commencement date for the above is 1st April 2019
HMRC’s latest guidance on MTD VAT states that;
Whilst the complete set of digital records to meet MTD requirements do not all have to be held in one place or program, there must be a digital link between these pieces of software used.
What does this mean for my business?
So if you’re a business with a turnover above £85,000 you’ve got less than a year to get yourself ‘MTD ready’. If you submit VAT manually through the post or online (using the existing Government Gateway tool), you will have to integrate commercial accounting software into your business ahead of April 2019 as these forms of submissions will no longer be accepted by HMRC.
What are the cost implications associated with MTD?
For businesses requiring digital software for the first time, there are a number of providers that will offer a subscription basis package, tailored to your company’s size and/or structure.
If you need help deciding on the best software, or would like to discuss how best to approach this, just let us know. We’d be happy to help!
Are there any exemptions for businesses which have a turnover above the VAT registration threshold?
The HMRC have outlined three key areas for exemption to MTD;
- Living in an area of poor/no broadband coverage
- Age or disability – There is still no clarity on what this actually means from HMRC!
- Religious grounds.
I’m not sure if I’ll clear the £85,000 threshold this year?
MTD is only mandatory for businesses with a turnover above the VAT threshold – currently £85,000.
You will however need to be mindful of your taxable income. We can help you with this, along with helping you comply with VAT registration requirements. You will be required to VAT register and come within the scope of MTD if:
- at the end of any month, the value of your taxable supplies in the previous 12 months or less is over the registration threshold
- at any time, you expect the value of your taxable supplies in the next 30 day period alone, to go over the registration threshold.
Will there be penalties for not complying with MTD?
If businesses fail to comply, they will attract ‘points’. Points unfortunately mean penalties in line with the Governments new ‘points-based’ penalties regime.
Late filing penalties
Last year, HMRC decided that those who do not comply with MTD will face a new, ‘points-based’ penalty model.
In short, late filing will attract penalty points, which will accrue on the basis of how late the filing is and how many filings have been submitted late.
After four late submissions, a penalty will be charged for each late submission.
Similar to penalty points received on driving licences for motoring offences, MTD ‘points’ will expire after a certain period – and can also be appealed if the business or taxpayer feels they are unfair. Typically, points will be erased after four compliant submissions.
Late payment penalties and interest
HMRC’s penalty system for late payments will be different to that applied to late filing.
With late payments, penalties will apply after 15 days of non-payment, and then double after 30 days of non-payment, with daily penalties charged thereafter. Interest will accrue on outstanding amounts from the due date until payment.
HMRC has confirmed that there will be a ‘soft landing’ period for late submissions during the first year of MTD for VAT. However, it is not clear whether the current VAT surcharge system will apply to VAT returns submitted under MTD within that ‘soft-landing’ period.
The information was correct at time of publishing but may now be out of date.