Making Tax Digital
UPDATE – October 2021 – Making Tax Digital for VAT’s (MTD) final element is due to be implemented from periods beginning on or after 1 April 2022.
What this means for you and your business
If you are VAT registered and your taxable turnover is above £85,000, you should already be submitting your VAT returns via the MTD portal (unless you have an exemption). From 1 April 2022 any organisation that is VAT registered, regardless of turnover, must maintain digital records to submit VAT returns digitally via the MTD portal. The most straightforward way to do this is to submit the returns directly to HMRC from MTD-compliant bookkeeping software. VAT records can no longer be kept manually and then entered into the HMRC online VAT filing portal – this portal is being closed.
Recommended next steps
April 2020 – Making Tax Digital ‘digital links’ requirement delayed
In response to the COVID-19 crisis, HMRC has confirmed that any businesses undertaking Making Tax Digital (MTD) for VAT now have an extension to 1 April 2021 (previous deadline 1 April or 1 October 2020) to meet the ‘digital links’ requirement related to their recordkeeping systems.
To be MTD for VAT compliant, the digital links requirement will see businesses move their system to ‘functional compatible software’. For clarity, a digital link is when the VAT data required for MTD is transferred between two digital places such as software or computer devices, for example when a business digitally transfers VAT data to their accountant in order for exemptions to be calculated. It also occurs when a business retains transactions with a spreadsheet and uses a formula to calculate a total. However, HMRC does have two strict rules on what defines a digital link for HMRC, that is:
- Data is transferred electronically between software programmes, products or applications – linked cells in a spreadsheet or a formula.
- The transfer is automated – it doesn’t need manual intervention such as copying data by hand, but a click of a button is considered a digital process.
HMRC also accepts less obvious digital links including:
- Emailing a spreadsheet so it can be imported into software.
- Using a memory stick or pen drive.
- Import and export including downloading and uploading of files.
- API transfer.
If you have a query about Making Tax Digital, contact our team today at MTD@chiene.co.uk.
HMRC’s plans for a fully digital tax system will see the biggest transformation to the tax system in 20 years. Our clients have already been contacted by HMRC encouraging them to sign up for the digital tax account. This is a pre-curser to the fundamental changes due to come in from April 2019.
The new system will see the end of the tax return for individuals, partnerships, trusts and companies. Instead, business owners, trustees and some individuals will be required to maintain digital records using software which is compatible with HMRC’s systems and to report to HMRC on a quarterly basis. Employees who have buy-to-let properties will also need to report quarterly if rents are in excess of £10,000 per annum. Owners and landlords will have one month from the end of each quarter to report turnover, expenses and any accounting adjustments such as stock, accruals and prepayments. There will also be a final sign-off nine months from the end of the accounting period to confirm that the information is correct and complete. Penalties will apply for late returns.
The new reporting procedures will start with smaller businesses. VAT will move onto the new system in April 2019 (there are some selected deferrals until October 2019 for certain entities), followed in later years by more organisations. To assist smaller businesses and in order to simplify the tax system there are likely to be new rules for revenue and capital expenditure, interest restrictions and restrictions to loss relief.
At present there are no plans to change the tax payment dates but a voluntary ‘pay as you go’ option will be introduced. Whilst some businesses will wish to pay tax on profits as they arise, the impact on cashflow should not be overlooked. Details on how to obtain a repayment of tax if cashflow is tight have not been finalised.
HMRC already receives certain information direct from third parties such as payroll details, interest from banks and rental income from letting agents. This information will be used to pre-populate the digital tax account. Whilst this should reduce the burden to obtain and supply this information separately, concerns have been raised that the information sent to HMRC is not always correct and it will be up to the taxpayer to sort out any discrepancies with the third party.
The proposals are currently out for consultation and only when HMRC has considered the responses will the detail be finalised. For our clients, this will be a real-time system with more frequent contact, greater review, greater workloads, a change to timetables and in some cases, additional costs.
More information on Making Tax Digital
From Making Tax Digital to financial integrated solutions, the world of technology is an essential part of our world. In response to the technical challenges that face our clients we have launched C+T Digital to deliver advice and support across a variety of digital areas including:
- Making Tax Digital
- Onboarding digital accounting
- Open banking solutions
- Online web shop integration
- Tailored financial eco-system integration
Through the efficient use of technology, all organisations can identify, understand and take advantage of efficiencies to save time and money. Key areas of focus include:
- How technology can play an increasingly important part of the success of a business with tailored software solutions.
- Learn about challenges in your sector and identify systems to monitor and control potential outcomes.
- Tailor financial systems to the needs and requirements of your organisation, not just for today, but to support you as you evolve.
- Learn how to use regular reporting tools using intelligent business management software to identify and maximise growth.
- Support project cost control and effectively monitor ongoing performance.
In addition to identifying tailored solution, the C+T Digital team has a wide range of experience in the accounting technology sector and work closely with a number of technology solutions including Xero, Quickbooks and Sage, to name a few.
If your organisation is looking to identify and exploit efficiencies to increase return on investment, contact Daniel Braidwood at firstname.lastname@example.org or call 0131 558 5800.
Making Tax Digital (MTD) does not apply to everyone. Find out if your organisation needs to be compliant via our MTD tool here.
How do I sign up my business?
If your business is required to submit MTD compatible VAT returns, we have created a step by step guide below with how to apply for your new government gateway link.
Steps to sign up for MTD
The following steps must be followed to sign up to MTD for VAT.
Step 1: Click on the link: https://www.gov.uk/guidance/sign-up-for-making-tax-digital-for-vat
Step 2: Select the option ‘Sign up your own business’
Step 3: You will be asked two straight forward questions to confirm that you have use of accounting software (Sage/Xero/Quickbooks/FreeAgent) and that this software is compatible with MTD requirements. If you are not sure of this then please either contact your software provider to confirm, or check HMRC’s list of approved software which can be found here: https://www.tax.service.gov.uk/making-tax-digital-software
Step 4: You will then be required to enter your Government Gateway ID and password in order to access your online VAT portal. This is the same ID you use currently to submit VAT returns online. The next page will ask you to confirm the details of the business’s account such as full name and contact email address. If these are displayed correctly then click ‘Yes’ and continue.
Step 5: The next page may ask you to set up recovery information for your sign in details should these be misplaced or forgotten.
Step 6: As per normal sign in, you will be sent a unique 6-digit access code via text or email to authenticate that you can access the VAT account.
Step 7: The next page will ask if you have more than one VAT registered business. In most cases this will prompt a ‘No’ response and then you can continue.
Step 8: The next page will then ask to confirm what ‘type’ of VAT registered business you are (sole trader, limited company, limited partnership etc). Click on the one that is relevant to your business and then click continue.
Step 9: You will now be asked to answer a series of questions about the business. Depending on what type of business you selected, the questions will vary. For incorporated businesses this will include the company registration number and Corporation Tax unique taxpayer reference number. For sole traders you will require your national insurance number.
Step 10: Once the above information has been entered the website will display a page that will ask you to review the answers to the previous questions so that you are sure the correct information has been entered. If required, you will be able to change any incorrect or inaccurate information on this page by clicking the ‘change’ link next to each box.
Step 11: The next page will ask you to enter a business email address that HMRC can use to contact the business and also send updates regarding MTD & VAT.
Once the email address has been confirmed, a link will be sent to that email address which you must click on once received to verify that it is the correct email address. This link will redirect you back to the government gateway portal where you may have to enter your Government Gateway ID and password once again. This is to confirm that you are a real person within the business who has the authority to be giving this information to HMRC.
Step 12: Once these steps have been completed you will have to wait up to 72 hours for HMRC to contact you via the email address you provided to confirm that the business has been accepted for MTD.
Step 13: Once you have received the confirmation email from HMRC that your business has been signed up for MTD then you must go to your compatible software and sign into your Government gateway account via the MTD page using the same log in detail that you have used previously. Once you have logged in via the software then this will link the software to HMRC, and you will be in a position to start to submit VAT returns as per MTD requirements.
The act of signing up for MTD effectively closes off the current VAT return submission area of the HMRC portal for the business. All the details held by HMRC for the business will move to the new MTD area and if the business tries to submit a VAT return using the old process, ignoring any warning messages that appear, it is understood the return will submit but will effectively be ‘lost’ in HMRC’s systems as they will not be able to match the return to the business.
If you have a query about this step by step guide, please contact our MTD team today at MTD@chiene.co.uk.
For the main bookkeeping software providers, we have listed below logos with links to their websites that will show information on how they link their software to a government gateway account, to allow MTD submissions. Click on the relevant logo to see your software provider’s MTD government gateway link/ advice.
If you can’t see the software supplier you use on this list, please contact our team at MTD@chiene.co.uk or call 0131 558 5800.
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