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Making Tax Digital

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What is Making Tax Digital?

Making Tax Digital is a government initiative that aims to make it easier for individuals and businesses to get their tax right and keep on top of their affairs.

The first phase is being introduced from April 2019 for VAT registered entities. Businesses with turnover above the VAT threshold will be required to maintain digital records and submit their VAT information to HMRC using Making Tax Digital compatible third party software. Most businesses have submitted their VAT return electronically for several years, but once Making Tax Digital is introduced, the records for the underlying transactions will also need to be maintained electronically, which will require a change in process for many businesses.

Who is affected?

Making Tax Digital for VAT will apply to VAT registered businesses with turnover above the VAT threshold (currently £85,000). This applies to sole traders, partnerships, companies, LLPs and charities. VAT registered businesses with a turnover below the registration threshold can opt in and file their VAT information via Making Tax Digital if they wish.

What do we know?

Start date

1 April 2019

Exemptions

The exemptions that currently apply for electronic VAT filing will also apply to Making Tax Digital. There is an automatic exemption for businesses which are registered for VAT but have turnover below the registration threshold.

Free Software

At this time we understand from HMRC that there will be no free software for Making Tax Digital for VAT.

Digital record-keeping requirements

HMRC has confirmed that the requirement to keep digital records does not mean that businesses will have to make and store underlying invoices and receipts digitally. The information that must be reported includes:

  • Business name
  • Place of business and VAT registration number
  • Information about supplies made and received

Records, digital and paper, must be kept for six years.

Flat rate VAT scheme

Businesses will still be able to use the flat rate scheme.

Monthly returns

Businesses will still be able to submit monthly, rather than quarterly, returns under Making Tax Digital.

For businesses not already using computer software to maintain their records this change could be considered an administrative burden. However, complying with Making Tax Digital requirements could actually bring some broader benefits for many businesses. Once the software system is up and running it can provide real-time information, reduce errors and save you time which ultimately helps you to run a more efficient business.

In addition, even if you currently maintain your records in software, you may have to make some changes, depending on the software you use – some older software will not be compliant with Making Tax Digital requirements.

Taxes other than VAT

HMRC have confirmed that Making Tax Digital requirements for taxes other than VAT will come into effect from April 2020 at the earliest.

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