Since it was announced more than three years ago there have been a number of changes and delays to Making Tax Digital (MTD), what is it and how should you prepare? Salhan Accountants team of accountants in Droitwich have the answers.
Introduced by HM Revenue & Customs (HMRC), MTD will require all VAT-registered businesses above the VAT threshold of £85,000 to make changes to the way they record, report and pay tax to the Government.
Described as one of the most significant change to the UK’s taxation system in the last 70 years it will have a major impact on every SME and owner-operator in the UK.
HMRC says that MTD will increase the tax take through the reduction of errors, reduce their costs and free up their resources, and provide an enhanced customer service.
There are many elements to the Government’s digital strategy, but the main three issues that businesses need to be aware of are:
- compulsory digital record-keeping;
- quarterly online submission of information to HMRC, with penalties for non-compliance; and
- an online end of year update within 10 months of the end of the accounting period or 31 January, whichever is the earlier.
The timescale for introduction is short:
- April 2019 for VAT; and
- April 2020 at the earliest for other corporate taxes.
SMEs will need to start digital record-keeping and reporting for VAT if their first VAT period has a start date after 1 April 2019, while those below the threshold will be able to join the new regime on a voluntary basis.
HMRC has already highlighted a number of online accounting software providers on its website that are compliant with the new system and has also amended its rules to allow for the submission of records via its own API system.
Exemptions will be offered to businesses on the grounds of religion, insolvency, or because it is not reasonably practicable to use digital tools.
HMRC has announced that the most complex businesses will have until October 2019 before they need to comply.
However, for the majority of SMEs who currently file VAT returns, the new rules will apply from April next year.
HMRC has also proposed two separate penalty systems for late filing and late payment under MTD for VAT.
Late filing will attract penalty points, which will accrue and after four late submissions, a penalty will be charged for each late submission.
Meanwhile, late payments will attract penalties after 15 days, before doubling after 30 days, with daily penalties charged thereafter.
A ‘soft landing’ period for late submissions will be in place in the first year, but digital record keeping will be compulsory from April.
Businesses need to act quickly if they haven’t begun preparations yet. At Salhan Accountants, our Droitwich accountant is helping a wide variety of companies to migrate their existing accounts online using a variety of software packages and ensuring they are compliant with the new digital tax system. To find out how we can help you with your preparations, please contact us.
