Making Tax Digital is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs.
HMRC’s ambition is to become one of the most digitally advanced tax administrations in the world and Making Tax Digital (MTD) is making fundamental changes to the way the tax system works.
It is anticipated the move to digital integration will eliminate many of the existing paper-based processes, allowing businesses and their agents to devote more time and attention to maximising business opportunities, encouraging growth and fostering good financial planning.
MTD for VAT – this is currently a private pilot available to invited volunteer VAT businesses and their agents. This is so HMRC can work with software providers, testing their systems and their products on a small scale before opening it out to a wider audience.
VAT-registered businesses with a taxable turnover above the VAT threshold (£85,000) are required to use the Making Tax Digital compatible software to submit their VAT returns from 1 April 2019. If the taxable turnover subsequently falls below the threshold then the business will need to continue to follow the MTD rules, unless it deregisters from VAT or meets other exemption criteria, some of which are listed in the Exemptions section.
Only businesses with taxable turnover that has never exceeded the VAT registration threshold (currently £85,000) will be exempt from MTD. HMRC have decided to delay mandation for these customers until 1 October 2019. Businesses will therefore, need to keep an eye on their taxable turnover, especially if it is close to the VAT registration threshold.
This pilot is already available for the self-employed with income from one source of self-employment and landlords (except those with furnished holiday lettings).
Some businesses and agents are already keeping digital records and providing updates to HMRC as part of a live pilot to test and develop the Making Tax Digital service for Income Tax. If you are a self-employed business or landlord you can voluntarily use software to keep business records digitally and send Income Tax updates to HMRC instead of filing a Self-Assessment tax return.
A business is not required to follow the MTD rules where HMRC is satisfied that:
If HMRC consider an exemption is not appropriate, digital assistance may be available to help the business get online support.
The majority of customers want to get their tax right but the latest tax gap figures show that too many find this hard, with avoidable mistakes costing the Exchequer over £9 billion a year. The improved accuracy that digital records provide, along with the help built into many software products and the fact that information is sent directly to HMRC from the digital records, avoiding transposition errors, will reduce the amount of tax lost to these avoidable errors.
HMRC have consulted with stakeholders throughout the development of Making Tax Digital, both formally and informally.
Having listened to concerns about the pace of change, particularly for small businesses, the government announced in July 2017 that the pace of mandation would be slowed and that Making Tax Digital will not be mandated for taxes other than VAT until at least April 2020.
HMRC published the VAT Notice 700/22: Making Tax Digital for VAT, which explains the rules and digital information that must be kept.
If a business is exempt from MTD then it may still choose to follow the MTD rules. To do this, the business must tell HMRC before the start of the next VAT period that it wants to use the MTD service and also the date its next VAT period begins. It will then be subject to the MTD rules from the start of the next VAT period.
A business may decide, for a later period, that it no longer wishes to follow the MTD rules. If it is still exempt from MTD at that point, the business can tell HMRC it wants to leave the MTD service and submit returns the way it submitted them before choosing to follow the MTD rules. This will be from the start of the next VAT period following the date HMRC were informed.
If a business is exempt and wants to join or leave MTD it must tell HMRC in writing.