What is Making Tax Digital?

Making Tax Digital is a crucial component of the UK government’s ambitions to simplify how people and businesses file their taxes and manage their finances.

HMRC’s vision is to be a digitally advanced tax administration in the world. MTD is making crucial transforming the way the taxation system works and making it –

  • more effective
  • more efficient
  • easier for taxpayers to get their tax right

This is the first step towards a long-term goal of requiring the real-time filing of individual transactions with HMRC. On 1 April 2019, the rules will be effective only for VAT. Following this, MTD may be extended for Income Tax and Corporation Tax, from 2020 at the earliest.

Making Tax Digital for VAT timeline

DateActivity
April 2019Making Tax Digital was mandated for all customers (apart from those who have been deferred).
October 2019Making Tax Digital was mandated for all customers (apart from those who have been deferred). A six-month deferral is for those customers who come under the following categories: trusts, NPOs (not-for-profit organisations), VAT divisions, VAT groups, and those public sector entities required to provide additional information on their VAT return (Government departments, NHS Trusts), local authorities, public corporations, traders based overseas, annual accounting scheme users and those required to make payments on account.

What are the requirements?

Businesses must provide digital information to HMRC using “functional compliant software.” Simply expressed, this means that in order to connect to HMRC and submit information to them, some type of computerised bookkeeping software or cloud accounting package is required. To facilitate a smooth data transfer from the business to HMRC, HMRC has advised that the use of spreadsheets will be authorised but that they must be coupled with third-party commercial software via APIs (and vice versa).

As a business owner, what should I do?

As a VAT-registered business, it is crucial for you to keep updated accounting records.

For each supply you make you must record the:

  • time of supply (tax point)
  • value of the supply (net value excluding VAT)
  • rate of VAT charged

This only applies to purchases that were reported on your VAT Return. The VAT Return does not require the recording of supplies; hence this requirement is not applicable. For a VAT group, intra-group supplies are one example where these regulations do not apply.

The time of supply is the date that you must declare the output tax. When you deliver a VAT invoice or, if you use cash accounting, when you receive payment for the supply, is when you typically do this.

Action required

As we are reaching April 2019, it is the need of the hour for businesses to start thinking about the impacts of MTD on them. This includes:

  • Ensuring the accounting data is MTD-compliant and suitable for the purpose.
  • Considering the robustness of the VAT policies and practices that will form the backbone of the digital records.

AcoBloom International is a premier group in India, having numerous prestigious clients with having a global presence. AcoBloom International is a few of the pioneers in delivering the co-sourcing model, which helps to deliver sustainable growth & profitability to the accountancy firms in the UK from an outsourcing perspective in the accounting and finance arena.

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