What is Making Tax Digital for VAT
If you run a VAT-registered business with a taxable turnover above the VAT registration threshold (currently £85,000) you are required to keep digital VAT business records and send returns using Making Tax Digital (MTD)-compatible software. The vast majority of businesses will need to do this for VAT periods starting on or after 1 April 2019. Businesses with a taxable turnover below the VAT threshold can also sign up for MTD for VAT voluntarily.
When MTD for VAT will be mandatory for your business
If you are registered for VAT and your taxable turnover is above the VAT registration threshold (currently £85,000), you must keep digital business records and send your VAT returns to HMRC using MTD-compatible software. For the vast majority of businesses this applies to accounting periods starting on or after 1 April 2019.
If your taxable turnover drops below the VAT registration threshold at any point after 1 April 2019 you are still required to continue to keep digital records and send HMRC your VAT returns using MTD-compatible software. This obligation doesn’t apply if you de-register from VAT or if you are exempt from MTD for VAT.
For a small minority of businesses that have more complex requirements, HMRC have made the decision to defer mandation by 6 months to ensure there is sufficient time for testing the service with them in the pilot before they are mandated to join. These businesses have until 1 October 2019 to start keeping records digitally and using MTD-compatible software to send their VAT returns to HMRC.
This applies to those that fall into one of the following categories: trusts, ‘not for profit’ organisations that are not set up as a company, VAT divisions, VAT groups, those public sector entities required to provide additional information on their VAT return (such as government departments and NHS Trusts), local authorities, public corporations, traders based overseas, those required to make payments on account and annual accounting scheme users.
What happens if your taxable VAT turnover is below the VAT MTD threshold
If your business has a taxable turnover below the VAT threshold you can still sign up for MTD voluntarily. HMRC is encouraging businesses with a taxable turnover below the VAT threshold to sign up so they can also benefit from MTD. Businesses can also sign up for MTD for Income Tax. This means, subject to your business type, you can further streamline your business processes. You can read more about MTD for Income Tax further down.
Software will help you stay on top of business record keeping, allowing you (and your agent, if you have one) to better understand how your business is performing.
What your business needs to do to be ready to sign up for MTD
You will need to keep your business records digitally from the start of your accounting period. If you already use software to keep your business records, check your software provider’s plans to introduce MTD-compatible software.
If you don’t currently use software, or your software won’t be MTD-compatible, you’ll need to consider what software is suitable for your requirements.
MTD Cloud Accounting Limited can supply you with a free cloud based accounting software package with a choice of Xero, Kashflow, Sage or Quickbooks. If you are an existing user of an accounting package we’ll also be happy to work with you using that.
We can provide training to those that need it, and unlimited telephone support.