MTD or Making Tax Digital is a scheme by HMRC to transform their current tax system to make it much easier for businesses and individuals to deal with their tax and VAT obligations.
Though there have been some hold-ups since the idea was announced, HMRC is now beginning to roll the scheme out to businesses and in April 2019, businesses will be mandated to use the Making Tax Digital for Business system but only to meet VAT obligations. Small businesses who do not meet the threshold (which is currently £85,000) will not be mandated to use the system but are encouraged to do so voluntarily.
What is the VAT Record Keeping System and How Does It Work?
There are now 18 approved software providers for the MTD for VAT system. All are offering something slightly different but as each has been presented to HMRC and tested their products within the HMRC test environment, you can simply pick the one that suits you best and use it with confidence. However we do recommended Intuit’s Quickbooks Online, which is a great accounting solution and is MTD ready.
Before you start, some permanent information about your business is required including your business name and address, your VAT number and any VAT accounting scheme you are using.
You do not have to keep a digital image or scan of every purchase however you do have to record certain information including:
- The tax point (time of supply)
- Net value excluding VAT (value of the supply)
- The rate of VAT charged
You are not required to record transactions that don’t affect the VAT return, for example, supplies within a VAT group.
If your business is partially exempt or uses a VAT scheme and you don’t know how much VAT you can reclaim on each individual invoice, you can choose to record either the full VAT, no VAT or your estimated recoverable VAT. The VAT digital records may be adjusted later on when the partial exemption or other scheme calculation is done for the VAT period. For more information about what counts as “Digital” and the some examples of how MTD works please contact us or have a look at VAT Notice 700/22
Are Individuals Affected by MTD Yet?
In short, no. HMRC’s plans for individuals is to develop the Personal Tax Account to such an extent that the tax self-assessment will be made redundant. The hope is that by making it easier and more efficient for people to declare their tax, they will reduce the burden and the number of mistakes that are made during the process.
Most of the plan involves connecting the information HMRC has about each taxpayer so that less frequent tax returns need to be made – especially where the situation is not changing. This should reduce the workload at both ends and should also mean that taxes are taken fairly and at the right time.
As MTD progresses, lots of changes will be made and it will take time for businesses to get to grips with the new systems and changing responsibilities. In addition to the large amounts of rules surrounding MTD and what counts as digital. If you are unsure what your business should be doing, call Prestige Business Management today on 0203 773 2927 or email us at info@prestigebm.co.uk for more information and guidance.