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Making Tax Digital

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What is Making Tax Digital?

Making Tax Digital is a government project with the objective 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.  This will require many businesses to make changes to their processes and/or software.

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 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 – most businesses*: Your first VAT return period starting on or after 1 April 2019.

Start date – deferred businesses*: Your first VAT return period starting on or after 1 October 2019.

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

Free Software: HMRC have been clear 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. However, you can keep all records digitally if you wish, as long as hard copies are not needed for any other purpose. There is no change to the requirement to keep all records (whether digital or paper) for 6 years.

* In October 2018, HMRC announced a deferred start date for a small number of entities affected by MTD. These are:
• trusts
• ‘not for profit’ organisations that are not set up as a company
• VAT divisions
• VAT groups,
• those public sector entities required to provide additional information on their VAT return (Government departments, NHS Trusts)
• local authorities
• public corporations,
• traders based overseas,
• those required to make payments on account
• annual accounting scheme users

If you currently maintain your records using 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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