Guide to Making Tax Digital

Making Tax Digital

Brexit has been grabbing the headlines for months now, but there is something else that will greatly affect most small businesses at the beginning of April – Making Tax Digital (MTD).

Nearly all businesses with a turnover of £85,000 or more will have to submit their VAT returns through ‘digital software’ from April.

You will no longer be able to log onto the HMRC website and enter your VAT figures for submission. You will need to submit the figures through some kind of digital software instead.

April is creeping up but don’t panic, there is still time to make sure you are compliant with Making Tax Digital. Although it might seem daunting, there are lots of benefits of the scheme; the main one being that it means that lots of businesses are now using cloud software which usually saves them time and can also save them money when implemented.

So, what do I need to do?

This depends on how you are currently doing the bookkeeping for your business.

If you are using cloud software such as Xero, the good news is that you are already producing digital records for your bookkeeping! However, you will still need to sign up to Making Tax Digital through your HMRC online account and then link your software to this login. If you submit the VAT returns for your business, you can either do this yourself or your accountant can do this for you. If your accountant submits your VAT returns, they will do this for you through their agent login.

Click here to view a full list of software able to submit MTD VAT returns.

If you are using Sage Line 50 desktop software, and you’re using version 23 or below, you will need to upgrade to the latest version to ensure you’re compliant. Often a more cost-effective and efficient way to comply is to move over to cloud accounting software. And if you’re using other desktop software, you will need to contact them or your accountant to make sure you can submit VAT returns under MTD.

If you are using spreadsheets to do your bookkeeping, you will still be able to use them, however, you will need bridging software to submit the figures to HMRC. You can ask your accountant for advice on this. Again, it may be better to move onto cloud software, depending on the needs of your business.

If you are using manual records you will definitely need to change the way you do your bookkeeping as paper bookkeeping records do not meet the new legislation. Contact your accountant for help with this.

Do I need to keep digital copies of invoices?

No, the actual copy of the invoice can still be a paper copy but ensure you still keep copies for 7 years.

Cloud software often enables you to keep a digital copy of invoices within the software at no extra cost. There is then no need to keep a paper copy.

When will I no longer be able to use the HMRC website to submit VAT returns?

Although MTD comes into force in April, it only actually applies to VAT periods which start from 1st April.

So the following quarterly returns will be the first compulsory ones:

  • 1 April 2019 – 30 June 2019 – Due for submission by 7th August 2019
  • 1 May – 31 July – Due for submission by 7th September 2019
  • 1 June – 31 August – Due for submission by 7th October 2019

There is still time to make sure you comply but you need to be using the new bookkeeping system from the start of the VAT return period which applies to you above.

Will there be any penalties?

It is not clear how harsh HMRC will be for non-compliance, however, what they have said is that there will be ‘soft landing’ penalties in the first year. However, these soft landing penalties only apply to the ‘digital link’ between the source document and the filing system. This means that if you attempt to file the VAT return digitally and something goes wrong, they will be more lenient.

So, if you are mandated to file VAT returns under MTD and you continue to use the old system, they are still likely to fine you.

If you’ve got any questions on the topics covered in this blog or if you’d like to talk about using a digital platform for your accounting, get in touch as we’d love to hear from you.