Introducing Making Tax Digital (MTD) in 2019

On 1 April 2019, HMRC officially launches Making Tax Digital for business (MTDfb), for every business generating more than the VAT threshold of £85,000.

HMRC wants this system to make tax more efficient for small business and corporate taxpayers. For any business above the VAT threshold, financial records now need to be kept electronically and submitted to HMRC every quarter using compatible software.

Whenever small business owners are asked to do anything new, especially when it comes from the government, there is always a concern that costs will increase. Or it will take up more time. With MTD, we are confident that isn’t the case. Here is what you need to know.

How to get ready for MTD

For every VAT registered business, this is going to be mandatory in a few short months. You can voluntarily start before 1 April 2019, and if you are already using one of HMRC’s MTD approved accountancy software packages, then getting started will not take much extra work. It also won’t cost anything extra.

There are a few exemptions, according to VAT notice 700/22, published in July 2018. Businesses going through insolvency, or those where it isn’t practical to use digital tools (due to an owners age, remote locations or disabilities), or in any cases where the use of software is incompatible with an organisations religious beliefs.

HMRC is also giving organisations with more complex VAT needs more time, which includes: trusts, ‘not for profit’ organisations that are not set up as a company, VAT divisions, VAT groups, traders based overseas, those required to make payments on account and annual accounting scheme users. Organisations in these groups have until 1 October 2019 to start keeping records digitally and using MTD-compatible software to send their VAT returns to HMRC.

Businesses below the VAT threshold, sole traders, and buy-to-let property owners don't need to comply with MTD yet, although we expect that to come into place in April 2020. MTD has already been in operation for companies and agents/accountants in a nationwide pilot scheme since 2018, giving HMRC a chance to iron out any difficulties before it goes live this year.

If you are already using accountancy software, such as Sage, Xero, QuickBooks, then it should already be compatible with HMRC systems. To make sure, here is a complete list of compatible software from HMRC.

In order to get started, we recommend taking the following steps (and we can help you with any of this to make sure everything is in place, at no extra cost):

  1. Unless you are already using accountancy software, sign-up now; or if you are unsure please give us a call to discuss. If we already prepare VAT returns for your business/organisation, your only additional cost is £90 plus VAT per annum to cover the cost of a commercial software licence.

  2. We can assist in setting up most commercial accounting software. This way, both yourselves and our team - as your acting agents - have access and can update the accounts before submitting the data to HMRC. Particularly for Xero we can provide annual telephone or face to face support, typically from £250 plus VAT per annum. After the first year of using Xero you probably won’t need the extra support.

  3. Sign-up for MTD through your Gov.uk HMRC account. Or we can register you for this and connect to software to the API; it can either be done now or from 1 April 2019. As a VAT registered business, you may have already received letters about this.

  4. Either now or from 1 April - for the first quarter relevant to that date - records kept in a spreadsheet will be uploaded to the software before it’s submitted to HMRC. Another way to do this is to start recording everything - invoices in and out and PAYE - within the accountancy software, saving you the extra step of uploading the spreadsheet to the software.

  5. As part of your quarterly VAT returns, we check the information, then everything is sent digitally via the connection the software has to the HMRC systems.

Once you’ve made the leap from spreadsheets to software, it will start to be normal part of the admin of running your business. As you can see, this change doesn't come with significant extra costs or any extra work, especially if you are already using compatible software (and almost every company in that sector has worked hard to meet HMRC standards).

Don’t worry if all of this sounds a little daunting, like most things the media blows worries out of proportion: we are here to help. Contact us today to get started and see how we can get you ready for Making Tax Digital.