The main aim of Making Tax Digital (MTD) is to simplify tax reporting for businesses. MTD for VAT was rolled out on 1st April 2019 for VAT-registered limited companies which have taxable turnover above the £85,000 registration threshold.
In this blog, Patrick Gribben Head of Client Services at Intouch Accounting takes a look at the changes, what you need to be aware of and how it affects you.
Why has MTD been implemented?
The government’s main goal for HMRC is for it to be regarded as one of the world’s most advanced tax administrations. MTD is the catalyst for this; it is set to drive fundamental changes in our tax system, with the overall objective of making tax calculations more efficient, effective and to reduce the number of errors.
Who does MTD apply to?
MTD applies to VAT registered companies, LLPs, unincorporated businesses and charities which have a taxable turnover above the prevailing VAT registration threshold.
If your business falls into this category, all of your tax records must be stored digitally for VAT purposes only, plus you must also send all of your VAT return information via MTD ‘functional compatible software’.
Prior to the last Budget, many expected the Chancellor to reduce the VAT registration threshold to a mere £43,000, which would have seen hundreds of thousands of small companies falling into the MTD VAT scheme. Thankfully for many, he confirmed that the threshold will remain at £85,000 until at least April 2022.
If your company is VAT registered and its taxable turnover falls below the threshold, it is your choice whether or not to opt in and file your information digitally.
When does MTD come into effect?
MTD is already here! It came into effect on 1st April 2019 for most companies and applies to VAT return periods beginning on or after this date. If your company is small or has unique requirements you may be able to push this start date back to October 2019.
What records need to be stored digitally?
HMRC have kindly listed the records and details they expect businesses to store digitally in their ‘electronic accounts’.
- Your company’s name and registered address, VAT registration number and any accounting schemes you may use.
- Time of supply (you must include the date you declare output tax on).
- Value of supply (net value excluding VAT).
- Rate of VAT charged.
MTD can be confusing, especially when you’re already looking after your limited company and thinking about your next contract. Your accountant should already have contacted you to make you aware of MTD, and to ensure that their software is compatible. If not, make sure you get in touch right away…