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Making Tax Digital Bedford

An Introduction To Making Tax Digital 

What is MTD about? 

HMRC’s Making Tax digital (MTD) project aims to assist businesses keep abreast of their tax obligations. 

In particular, MTD: 

  • provides for electronic submission of information to HMRC; 

which, in turn will 

  • enable immediate HMRC review of the information; and 
  • reduce the risk of potential errors arising; 

which will enable 

  • businesses to obtain a more accurate view of their current tax position. 

Broadly, Making Tax Digital (MTD) for VAT applies for VAT return periods commencing on or after 1 April 2019. From that date onwards, most businesses making taxable supplies above the VAT registration threshold – currently £85,000 – are required to submit their VAT return to HMRC using MTD compatible software. 

Digital links 

MTD requires businesses to maintain information about sales and purchases in an electronic format. This means a software programme which allows information to be recorded in an electronic form which sends and receives information to/from HMRC using the API platform (including API-enabled spreadsheets). It is possible to use more than one software programme but there must be a digital link between them. 

Broadly, the functions of the compatible software must include: 

  • keeping records in a digital form; 
  • preserving digital records in a digital form; 
  • creating a VAT return from the digital records held in the software and providing HMRC with this information digitally; 
  • providing HMRC with VAT data on a voluntary basis; 
  • receiving information from HMRC via the API platform in relation to a relevant entity’s compliance with obligations under the regulations. 

Digital records can be kept in a range of digital formats. They do not all have to be held in the same place or on one piece of software. For example, a spreadsheet can be a component of digital record keeping provided the product that consolidates records, or summary records from the spreadsheet, can exchange data digitally with HMRC. 

The regular VAT penalty regime for missing any MTD obligations came into play on 1 April 2020. 

Exceptions to MTD 

You will not have to follow the Making Tax Digital rules where HMRC is satisfied that: 

  • Your business is run entirely by practicing members of a religious society whose beliefs are incompatible with the requirements of the regulations (for example, those 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 

These may apply even if you are not currently exempt from online filing for VAT. 

Does anything remain unchanged under MTD? 

Yes. What won’t have to change is the kind of information you send to HMRC or when you need to send it. You will, however, need the right kind of software to do it; software that supports the MTD obligations of keeping digital records and exchanging data digitally with HMRC through the MTD service. 

What is bridging software? 

Bridging software is the digital tool that can take information from other applications, for example, a spreadsheet or an in-house record keeping system and then lets the user send the required information digitally to HMRC in the correct format. 

What information needs to be recorded? 

The time of supply (tax point), the value of the supply (net excluding VAT) and the rate of VAT charged, business name and principle business address as well as your VAT Registration Number and details of any VAT accounting schemes you use. 

Can you continue to record daily totals? 

Yes, but they have to be captured digitally. If you use spreadsheets to keep business records, you’ll need MTD-compatible software so that you can send HMRC your quarterly VAT returns and receive information back from HMRC. 

What is the next phase? 

Making tax Digital for Income Tax 

For individuals with self-employed trading income and/or property rental income in excess of £10,000, MTD for income tax will be a requirement from 6 April 2024. All relevant individuals will be required to maintain digital records of trading/property transactions and submit quarterly reports, the first being the quarter from 6 April – 5 July 2024 (or 1 April – 30 June 2024), regardless of their accounting year end. 

These reports are additional to any already submitted under MTD for VAT, by VAT registered businesses. 

The quarterly income tax reports must be submitted within one month of the quarter end. 

The quarterly reports will be supplemented with an ‘end of period statement’ with adjustments to arrive at the final taxable trading or property profit or loss figure for the tax year. There will also be a ‘final declaration’ to include any other income that the individual has received. Both of these additional submissions are required by the normal self-assessment filing deadline of 31 January following the end of the tax year in question. This will replace the self-assessment tax return for individuals within MTD for income tax. 

General partnerships and their partners are likely to be mandated into the regime from 6 April 2025, with more complex partnerships (LLPs and those with corporate partners) following at a later date. 

Companies and corporation tax returns will also follow at a later date, and this will not be before April 2026. 

From 6 April 2023, we will also see changes to the ‘basis period’ rules for self-employed individuals that prepare accounts to a date other than 31 March or 5 April, with a number of considerations and choices to be made beforehand. 

More information

For more details visit this dedicated HMRC page here or give us a call.

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