HMRC are introducing Making Tax Digital (MTD) to make it easier for individuals and businesses to get their tax right and keep on top of their affairs. HMRC’s vision is for the UK to be one of the most digitally advanced tax administrations in the world. It is estimated that over £9 billion is lost annually in tax due to errors and mistakes, and it is hoped that digital record keeping will help prevent errors associated with manual processes.
How does MTD work?
The long-term aim is for all businesses to maintain their records in digital format so that this can be used as an interface with HMRC. HMRC will receive the information you submit much earlier than at present, and you will have access to a personal and business account which shows how much tax you owe. Working via cloud approved software will enable you to report and pay your tax with ease.
When does it start?
The first stage of MTD commences in April 2019
when businesses whose annual turnover was above £85,000 in the 12-month period ending 31 March 2019 will be required to register for MTD from 1 April 2019. From April onwards, a business will be required to monitor its turnover on a rolling 12-month basis, and to register for MTD from the start of the following VAT quarter if turnover exceeded £85,000. For example, if your turnover was below £85,000 in the year ended 31 March 2019 then no need to register on 1 April 2019. However, if your turnover in the 12-month period ending 31 July 2019 was above £85,000 then you will be required to register for MTD from 1 October 2019.
Smaller businesses below the threshold are not currently required to hold their data digitally, but it is anticipated that this requirement will soon be extended to all businesses who are registered for VAT. The ability to file online via the HMRC portal will eventually be phased out, just as paper returns were.
What is meant by ‘turnover’ for these purposes?
For VAT purposes, turnover means your taxable supplies, before charging VAT. Supplies made which are exempt or outside the scope of UK VAT, such as when you supply services to businesses outside the UK, are not taxable supplies.
What about my other taxes?
MTD is gradually being phased in and will eventually apply to all other taxes, requiring businesses and landlords to provide quarterly reports to HMRC via compatible software. HMRC have advised that the earliest this will be introduced is April 2020. For now, the focus is on VAT and as your accountants we will help guide you through the process to ensure you are MTD ready.
I’m using FreeAgent, is this compatible?
Yes, FreeAgent is MTD approved so no need to worry!
For the handful of clients who use FreeAgent but who still file their VAT returns via the HMRC Government gateway/online services (rather than through FreeAgent) you should start to file through the system as soon as possible and we would suggest doing so from January onwards. Please contact your accountant so that a reconciliation of your VAT account can be carried out prior to this.
I am still using quarterly returns, what should I do?
If you are still using our Excel quarterly returns, and think you will need to register for MTD, please call the office or email your accountant. We can talk you through using FreeAgent (included in the annual fee) and help get you started with cloud accounting. As the software operates in real time, your accountant can see the same screen as you simultaneously, as if you were in the same office together!
Link to Competex video knowledge base on using FreeAgent:
Responsibility to register
HMRC have said that it will be the responsibility of the owner to identify when they need to register for MTD.
How do I register?
You may have received a letter from HMRC asking you to register for MTD. If you know that your taxable supplies will exceed £85,000 in the 12 months to 31 March 2019 then you may wish to register now so that you are already set up prior to when it becomes compulsory for you in April 2019. Note however, once you have joined MTD you cannot withdraw, even if your turnover subsequently falls below the threshold.
You will need to register via the Government Gateway and will need your User ID and password plus your VAT registration number. Please follow this link: