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Making Tax Digital (MTD): Frequently Asked Questions

Below are some frequently asked questions regarding Making Tax Digital. If you are unable to find an answer to your query please do not hesitate to contact us using the form below.

What is ‘Making Tax Digital’?
Will I be affected?
Why would I opt in?
Are all VAT registered businesses affected from 1 April 2019?
Can I get an exemption from MTD?
Are there any advantages for me using MTD?
Do I need a new software package?
Do spreadsheets qualify as compatible software?
Can I file my returns manually through the HMRC portal?
What information will I need to keep digitally for VAT purposes?
Do I need digital records for other taxes?
How can James Cowper Kreston help?

 

What is ‘Making Tax Digital’?

Making Tax Digital (MTD) is part of HMRC’s plan to transform its current system into one of the most digitally advanced tax administrations in the world. The aim is to create a modern, digital service that enables businesses to get their tax right using modern technology.

There is no change in the amount or type of information supplied to HMRC, it’s the same 9 boxes as present, no extension of information to HMRC at least in the short term.

Will I be affected?

From 1 April 2019 VAT registered businesses with a turnover above the VAT threshold of £85,000 will have to:

  • Keep their records digitally for (VAT purposes).
  • Submit their VAT returns to HMRC via software approved for MTD.
  • Businesses registered for VAT but with a turnover below the VAT threshold can opt in and file their VAT information via MTD. 

Why would I opt in?

Opting in to MTD is beneficial for all business, even if they’re under the threshold.

  • This is a perfect time for any businesses looking to update their software to opt in to MTD, as almost all well-known software providers will be ready for the MTD switch.
  • Any business that is voluntarily registered for VAT could opt in to ensure that they are MTD compliant from the outset.

Are all VAT registered businesses affected from 1 April 2019?

Not necessarily. For a limited number of businesses HMRC have deferred MTD by six months of the start date, to 1 October 2019. This relates to:

  • Trusts.
  • Not for profit organisations that are not set up as an incorporated company.
  • VAT divisions.
  • VAT groups.
  • Public sector entities required to provide additional information on their VAT return (Government departments, NHS Trusts).
  • Local authorities.
  • Public corporations.
  • Businesses based overseas.
  • Those required to make payments on account.
  • Annual accounting scheme users.

Can I get an exemption from MTD?

There are very limited exemptions; you will not have to follow the MTD rules where HMRC is satisfied that:

  • Your business is run entirely by practising members of a religious society whose beliefs are incompatible with the requirements of the regulations (for example, those whose religious beliefs prevent them from using computers).
  • It is not reasonably practicable for you to use digital tools to keep your business records or submit your returns, for reasons of age, disability, remoteness of location or for any other reason.
  • You are subject to an insolvency procedure. 

HMRC will decide if you meet the exemption criteria. You must not assume that you automatically meet the criteria and will need to telephone the HMRC VAT helpline to seek any form of exemption in order to avoid possible penalties.
 

Are there any advantages for me using MTD?

Yes! If you currently have manual accounting records or use solely spreadsheets, there are likely to be some business benefits from switching to digital accounting software.

  • The future for record-keeping is definitely digital. HMRC advise that software will help businesses stay on top of their record-keeping, allowing them to better understand how their business is performing.
  • It allows for quicker completion of other financial tasks, such as yearend financial accounts.
  • HMRC believe that the current risk of re-keying errors and avoidable mistakes costs the Exchequer over £9bn a year.
  • Businesses already submit payroll data to HMRC via a real time information (RTI) system and this is just a further development along the digital pathway.

Do I need a new software package?

Any business that needs to change MTD must use functional compatible software that can meet the demands of HMRC. Almost all well-known software providers are fully ready for MTD, however, please ensure the following when comparing packages:

  • The software must be on HMRC’s published list of software packages, whereby the developers have obtained approval for their use with MTD.
  • You may wish to check with your current software provider if your accounts system is compatible.
  • Will the software be user friendly and allow a smooth transition of existing data, as well as the ability to easily file with HMRC?
  • The list includes developers that provide linking/bridging software for Application Programming Interface enabled spreadsheets.

Do spreadsheets qualify as compatible software?

Spreadsheets by themselves are not considered compatible. The use of spreadsheets, either to record individual transactions or as part of a suite of software and spreadsheets is permitted. However:

  • The spreadsheet itself will need to be either Application Programming Interface enabled or used in combination with an MTD compatible software product so that data can be sent to and received from HMRC systems.
  • It is acceptable to use spreadsheets for partial exemption calculations or business/non-business apportionments but any adjustments must be journaled into the accounting software. 
  • If you are a VAT group and use a spreadsheet for consolidation of each businesses return before submission to HMRC, the spreadsheet itself must be MTD compliant and be capable of submitting the consolidated return to HMRC.

Can I file my returns manually through the HMRC portal?

  • No, unless your taxable turnover is below £ 85,000.
  • Businesses subject to MTD will submit their returns using digital records in compatible software which can connect to HMRC via an Application Programming Interface.
  • The figures from the accounting software should not be manually re-keyed into another package (say) a spreadsheet, which would ordinarily deal with VAT adjustments or combination of data sources, but those figures should be transferred digitally.

There will be a ‘soft landing’ in the first year of MTD, allowing more time for these digital links to be put in place. ‘Cut and paste’ (and ‘copy and paste’) can still be used during this period for transferring data between software packages but not for VAT periods commencing on or after 1 April 2020.

What information will I need to keep digitally for VAT purposes?

A business will need to keep a record of sales and purchases so that the relevant VAT outputs and inputs can be calculated for each return period. The underlying records need to include the transaction date, the rate of VAT that applies and the invoice total.  

The software must be able to:

  • Keep the required records in a digital format.
  • Maintain the digital records for up to 6 years.
  • Produce a VAT return from the digital records.
  • Provide HMRC with information digitally.
  • Be able to receive information about the business compliance record digitally.

How does it affect Retail Schemes and the Flat Rate Scheme?

Retail
Retail Scheme users are permitted to record electronically sales transaction data based on daily gross takings rather than recording details of each individual sale.

Flat rate scheme
Businesses using the Flat Rate Scheme must keep digital records of sales but for purchases will only need to record purchases of capital goods costing £2,000 (VAT inclusive) or more. In effect the digital record keeping mirrors the current requirements.

MTD requirement
HMRC state that records can be maintained on spreadsheets for both, but you must be able to submit the required data via a linking/bridging software that communicates with HMRC’s Application Programming Interface.

Do I need digital records for other taxes?

MTD for income tax and corporation tax is expected to go ahead but not until at least 2020, subject partly upon the success of MTD for VAT.

However, we’ll keep you informed of any developments we hear about!

How can James Cowper Kreston help?

We can help with all MTD aspects, either by;

  • Inputting your transactions onto Xero software and submit the VAT return from the software on your behalf.
  • Transfer your VAT return information from your existing software which is not MTD compliant, to an Application Programming Interface enabled spreadsheet provided by James Cowper Kreston, and submit the return from the spreadsheet.

Please ask for further information including our fees for these two options.