If you are in business then the next hurdle that you may be facing is Making Tax Digital.
Making Tax Digital is one of the biggest changes to the UK tax regime since the introduction of self-assessment more than 20 years ago. In this article, I will look at the basics of making tax digital. I say ‘may be facing’ because two conditions both need to be met before you are affected, at least initially. The two conditions are:
- You are registered for VAT;
and
- Your taxable turnover is above the VAT threshold, currently £85,000pa
If both of the above conditions are met then you will need to comply with the MTD regulations for your first VAT period commencing on or after 1st April 2019.
Making tax digital for business
As a present, if your taxable turnover is close to the VAT threshold then you will need to monitor your turnover closely. If in any period of 12 complete calendar months or less your taxable turnover exceeds the VAT threshold then, unless you are already registered for VAT, you will need to register for VAT within the following month to take effect from the 1st day of the month thereafter. You will then become subject to making tax digital regulations.
Once you are required to comply with the MTD regulations then you will always be subject to them even if your turnover reduces to below the VAT threshold, unless you deregister from VAT.
How do I make sure my tax records comply with the MTD regulations?
If you are required to comply with the MTD then you will need to keep and preserve your records in a digital form. This is not difficult, and it is estimated that around half of all businesses already do so.
HMRC have specified in detail exactly what records must be maintained in a digital format. These details are:
- The business name and contact details
- Their VAT number and any VAT scheme used
- Any adjustments that they have made
- The VAT on supplies both made and received
- The time that those supplies were made
- The Net Value of those supplies excluding VAT
- The Rate of VAT applicable to those supplies
- (Retail Scheme Users Only) The Daily Gross Takings
- (Gold Accounting Scheme Users Only) Value of sales made under the scheme, and the total output tax on purchases made under the scheme.
These requirements can basically be met in two ways:
- You can maintain your records in one of the several commercially available accounting packages available. If you already use a package then you should ensure that it is MTD compatible. The Kashflow package that we as a firm advocate to many of our clients is MTD compatible.
- OR- For the time being, you can maintain your records in a spreadsheet program such as Excel and then use “bridging software” to submit the required information to HMRC. That bridging software is included in many of the commercially available accounting packages or can be made available by many accountancy firms. We will be able to provide this service to our clients.
Do not be fooled by the frequent television adverts by the two largest software suppliers who are trying to persuade you that their product is essential to comply with MTD. It is not!
If you are keeping your records on paper then you will need to change to digital record keeping. Again, your accountant can assist you. However, please remember that both conditions at the top of this article need to be met before MTD applies. If you are below the VAT registration limit then MTD does not apply, even if you are VAT registered voluntarily.