Making Tax Digital

Making Tax Digital (MTD) is the biggest change to VAT in decades!

MTD is the government’s plan to digitalise the tax system, with every individual in the UK eventually having their own personal tax account and every business its own business tax account - meaning the end of the traditional annual tax return for millions.

Currently, any VAT registered business has a responsibility to provide information to HMRC by completing a VAT return, whether that is monthly, quarterly or annually. This is processed by accessing the HMRC VAT gateway and entering the required information, either directly with HMRC or through an application programming interface (API) via accounting software providers such as Xero.

For those businesses that submit direct to HMRC, many are still using manual systems to record their accounting information and others are using spreadsheets such as Microsoft Excel and Google Sheets.

MTD changed this for all VAT periods that commenced after 1 April 2019 for all businesses with taxable turnover above £85,000. From April 2022, the programme was also extended to all VAT registered businesses with turnover below the VAT threshold, and from April 2026, it will apply to taxpayers who file income tax self-assessment tax returns for business or property income over £50,000 annually, and from April 2027 for sole traders and landlords with income over £30,000.

Now that MTD is mandatory, all businesses are required to keep their accounting records in a digital manner. It was intended that spreadsheets would not be acceptable, but this has been relaxed as long as there is an API that can link them to HMRC. Whilst such software exists it is very much a short term workaround and will not provide a long term solution.

MTD requirements of accounting software

All businesses will need to review their accounting software to ensure that it will be compliant with the new regime. As a minimum, it will need to be able to:

Process records in a digital form
Preserve digital records in a digital form
Create a VAT return from the digital records
Provide HMRC with VAT data on a voluntary basis
Receive information from HMRC via the API platform in order to allow HMRC to send ‘nudges’ to the firm or their tax agent

For advice about accounting software or digital record keeping get in touch.

Digital record keeping requirements

HMRC has confirmed businesses do not need to keep digital invoices and receipts, however, they do need to keep the transaction data digitally. The list below summarises what is required to be kept digitally:

Designatory data

Your business name
The address of your principal place of business
Your VAT registration number
A record of any VAT accounting schemes that you use

For each supply you make you must record

The time of supply
The value of the supply
The rate of VAT charged

For each supply you receive you must record

The time of supply
The value of the supply including any VAT that is not claimable by you
The amount of input tax that you will claim

An IPSOS MORI poll carried out in 2017 suggested 72% of businesses affected would seek help from their accountant/tax advisor. To ensure your business is ready it is recommended you take action now and If you are not using digital accounting software, speak to your accountant as soon as possible so they can assist you through the process of conversion to digital recording. If you are using a digital accounting software please check with them to ensure their software is going to be MTD compliant.

Our Solutions

Armstrong Watson has been working towards an MTD solution for the last two years and we are ready to help all clients get compliant. Our innovative approach allows us to do this as quickly and as efficiently as possible resulting in two main solutions:

Armstrong Watson Assisted simply provides us with a digital bank feed (Very easy to set up) and we can cost effectively take care of your MTD needs in the way we have helped clients prepare VAT returns in the past.

Armstrong Watson Xero Training allows you to gain access to our our 8 year Xero experience to help you set up your own digital accounting system, enabling you to take care of your MTD requirements.

Xero accounting software is the leading digital software in the UK and Armstrong Watson is not only the largest UK Xero partner but we were Xero’s UK Accounting Partner of the Year in 2017.

This accolade has been achieved by being one of the first accountancy firms to market Xero and the support from hundreds of clients that have already made the move to Xero. If Xero is not right for your business, our team will work with you to ensure you have the right accounting software to meet your needs. MTD should not be seen as a red tape, it should be seen as an opportunity to get control over your business information, opening the doors to business forecasting/budgeting and significantly easier access to finance.

Learn more

Get in touch for more details

Richard Woolgar

Head of Management Systems

0808 144 5575

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Making tax digital

Where we are now

How has MTD changed VAT returns?

MTD requirements of accounting software

Digital record keeping requirements

What should you do now?

Our Solutions

Platinum partnership with Xero

Get in touch for more details

Richard Woolgar

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