020 32 86 58 51  |  023 80 972 434

What is Making Tax Digital (MTD)?

Making Tax Digital, known as MTD, is a Government initiative to simplify the UK tax system and make the recording and reporting of taxes easier for businesses.

It will require all businesses who meet the set criteria to move towards maintaining their taxes and records in a digital format.

What’s the point of MTD?

HMRC estimates that the Tax Gap – the difference between what they expect to receive and what they actually get – is around £9 billion a year.  Making Tax Digital aims to reduce, if not eliminate, that gap.

Under the new system, tax recording should be more accurate, with fewer opportunities for error or fraud to occur, either deliberately or not.

The process is designed to be faster and more automated for businesses, saving them time and effort in getting their tax obligations correct, and hence the time HMRC has to spend on investigations.

Who is affected by MTD?

For now, it is only those VAT registered businesses with annual turnover above £85,000 that need to take action.  From the 1st April 2019, they will have to report VAT under the MTD system.

Making Tax Digital for corporation tax and income tax has been delayed until at least 2020 so there is no need to take action on those areas for now.

What do I have to do for MTD?

For any VAT periods starting on or after 1st April 2019 you will have to use MTD compatible software to file your VAT returns and you will need to maintain your records digitally.

Spreadsheets and filing cabinets of invoices will no longer meet your responsibilities, so if you are not already using MTD compatible software or storing records digitally, then you will need to make a change to how you do things.

At the end of September 2018 there will only be 6 months until you have to be ready for MTD, which may sound like a long time, but in reality, it is only two VAT quarters.  You will need to allow time for the changeover, perhaps consulting your accountant and bookkeeper, and getting used to the new way of doing things.

What happens if I ignore it?

Like with any other obligation to HMRC, if you ignore it, they will come after you and impose penalties.

Exactly what those will be are currently under review, but HMRC has said that it will be using a points-based penalty system whereby accumulating a certain amount of points for failures will equate to a certain penalty – be it interest or a fixed charge.

Our advice is not to wait to find out, and make the necessary steps to get MTD ready now!

The systems to use

There is a list of MTD compatible software for you here to see if you are already using an allowable system.

Our preferred choices for being MTD ready – as well as a lot of other great advantages – are Xero alongside ReceiptBank.

ReceiptBank extracts the necessary data from your purchase invoice and receipts, storing a digital copy you can access from anywhere, before sending it across to Xero which calculates your VAT obligations.

To talk to us further about getting your business ready for MTD and moving across to Xero and ReceiptBank get in touch with us on the details at the top.