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The Ultimate Making Tax Digital Checklist

Making Tax Digital Checklist

Making Tax Digital Background

HMRC wishes to ultimately automate and digitise all tax information supplied by tax-payers to reduce errors and enable it to detect fraud easily.  VAT will be the first tax subject to this new approach, but it won’t be the last.  The plan is to digitise other taxes such as income tax sometime in mid-2020.

The MTD process requires the 9 data points (boxes 1 to 9 of the current VAT return) to be submitted via software – an Application Programming Interface or API – rather than being entered manually via HMRC’s website.  Note that whilst it’s a requirement that all the underlying supporting transactions which make up these 9 values are stored electronically, such data will not be transmitted to HMRC.

1. Who’s affected and when

With few exceptions, all VAT registered businesses which have an annual turnover above the current threshold (£85,000) must submit MTD VAT returns for VAT periods starting on or after 01/04/2019.  Thus for a VAT period from 01/04/2019 to 30/06/2019, the first MTD return will be due by 07/08/2019.  HMRC is running a pilot scheme so you can sign up earlier if you wish to.

Note that if your VAT period straddles the cutover date your first MTD submission will be later. The following example may help to illustrate this. For a VAT period from 03/2019 to 05/2019, the first MTD submission covers 06/2019 to 08/2019 with the return due by 07/10/2019.

The exceptions to this timetable are Trusts, Not for Profit, traders based overseas, those making VAT payments on account or on the annual accounting scheme, and various non-SME entities.  You will know for sure that your business is in this category only if HMRC writes to you to confirm this.  These companies will need to submit MTD VAT returns for VAT periods from 01/10/2019 onwards (ie. earliest possible date for first MTD return is 07/02/2020).

Still unsure whether Making Tax Digital applies to you? Get in touch with us and we can do an MTD-audit on your business to make sure you’ve done everything you need to do (if MTD applies to you).

2. Find the right Software

Sometime in advance of your first MTD submission (earliest August 2019), you need to check you have the right software and the good news here is that most suppliers intend to be ready (e.g. Xero, QuickBooks, Sage Business Cloud, Iris, Kashflow etc).  Be careful that the version of the software you use will be MTD compliant as you may need to upgrade to another product from the same supplier. This information should be readily available from your software provider.

If your software is not on this list of MTD-compatible software or if you must manually calculate your VAT liability on a separate spreadsheet – perhaps because you’re on a special VAT scheme such as a VAT apportionment scheme, then you can retain your non-MTD compliant system providing you supplement it with Bridging Software.  Such software will take in a spreadsheet (probably extracted from your accounting system with various adjustments needed where necessary), extract the 9 VAT data items and then submit the information automatically to HMRC.  The plus side is that this software will be relatively inexpensive and easy to use.  At the time of writing, an example is Vital Tax where the current cost is zero for the first 12 months and then £1 pm thereafter.

HMRC maintains a list of all MTD compliant and Bridging software that’s either ready now or in development. Note that once you MTD deadline has passed, you will no longer be able to submit VAT returns by manually entering your VAT data into HMRC’s website portal.

3. Register for MTD

Once your software is ready, you can sign up for MTD with HMRC.  You simply need to sign on to the HMRC website and sign in using your Government Gateway ID and Password (which you currently use to submit your VAT returns). Watch the short video below for more information: 

4. Get an MTD-audit

Sign up for a free MTD audit by getting in touch with us. We’ll let you know whether Making Tax Digital applies to you and what you need to do to ensure you are compliant.