Making Tax Digital for Business – an important change to the original implementation date of April 2018
The government has announced a change to the deadline for Making Tax Digital. Businesses will not be asked to keep digital records or update HMRC quarterly for income tax and corporation tax until at least April 2020.
However, in preparation for that date, businesses should be encouraged to move from hard copy records to computer based software. There are still questions concerning MTD compatible software including excel spreadsheets and HMRC is currently working with software developers to define the minimum functionality of a free software package that would meet MTDfB requirements.
It’s proposed that the minimum package would allow businesses to:
- Keep digital records
- Generate and send quarterly updates to HMRC
- Complete end of year activity to ensure compliance with MTDfB requirements
- Include arithmetical error correction
- Include basic help functions and a basic level of built-in prompts
- Enable information to be sent from HMRC to businesses about their tax liability
HMRC has confirmed that the requirement to keep digital records does not mean that businesses will have to make and store invoices and receipts digitally. Businesses can continue to keep documents in paper form if they prefer, although transactions will need to be stored digitally.
Making Tax Digital for VAT – this has not been postponed
All VAT registered businesses with turnover above the VAT threshold are likely to need compatible software to be up and running by April 2019 (with the first VAT return period commencing on or after the 1st April 2019).
Qualifying businesses will be required to maintain digital records for VAT purposes and to submit their VAT return directly from software. The VAT deadline is likely to be reduced to one calendar month (losing the 7-day extension) and provision of additional information, such as the calculations underlying the return will be voluntary. As with income tax and corporation tax, businesses will not have to make and store invoices and receipts digitally.
Challenges lie in the submission of VAT returns from software, with only 87% currently using the Government Gateway. Adjustments for partial exemption, business, non-business, special schemes and different accounting systems are just some of the issues that need addressing by HMRC.
What should VAT registered businesses be considering now to ensure they meet the April deadline:
Check that your software is compatible. Commercial software must be able to:
- keep and preserve records in a digital form
- Create a VAT return from the digital records and provide HMRC with VAT data on a voluntary basis
- Receive information from HMRC via the API (application programme interfaces) platform. This will allow HMRC to send reminders to businesses or agents
- Make adjustments to correct calculation errors and any other adjustments required by VAT rules (only the total for each type of adjustment will be required to be kept digitally, not the details of the calculations underlying them