What is Making Tax Digital (MTD)?

Making Tax Digital (MTD) is part of the Government’s plan to digitise the UK tax system, by replacing paper tax returns with digital returns.

This means that maintaining paper records will soon cease to meet the legal requirements in tax legislation. Instead businesses will be required to use MTD compatible software to submit their returns to HMRC. 

What are the advantages of MTD for our clients?

• Digital returns should improve efficiency, accuracy and transparency
• Quarterly reporting will provide business owners with a more accurate overview of their financial position, aiding tax planning and strategic decision making
• Fewer surprises on VAT bills
• Paperwork, filing and manual data entry will be dramatically reduced because MTD compatible software will automatically record income and outgoings
• Digital record keeping should reduce manual entry errors
• Your Year End should be less stressful because all your records will be up to date

Who will be affected from 1 April 2019?

HMRC has confirmed that Making Tax Digital for business will come into effect in April 2019, starting with VAT.

From this date onwards, VAT registered businesses that are above the VAT threshold (currently £85k) will be required to keep their records digitally and submit VAT returns to HMRC using MTD-compatible software.

What does this mean for our VAT registered clients?

From 1 April 2019, our VAT registered clients will be required to submit returns online every quarter through your chosen cloud software. (or Pillow May if we file your VAT) Therefore, all you need to do (or Pillow May if we review your VAT) is check the information in your return is all correct before it is submitted.

Please remember, if we don’t currently file your VAT for you, the responsibility for filing still lies with you. If you wish to add this service to your package please contact us.

Are Xero and FreeAgent MTD compliant for VAT?

Xero and FreeAgent are already MTD compatible for VAT returns and available with no upgrade fees or delay. You may notice or feel a small difference to the look of the filing of your VAT but otherwise the process is staying the same. This is because Pillow May, working with the software providers have already done all the hard work for you behind the scenes.

Jessica even sat on the MTD software panel to help ensure the IT providers and HMRC designed the MTD software so it was fit for purpose, and easy for businesses and accountants to use, so we really do have everything covered.

Xero users will have noticed that the navigation bar has just been updated, aiming to be more efficient and user-friendly.

Xero has a great resources section of their website which you may find helpful – Xero MTD Resources Hub link

Are any VAT registered businesses exempt from MTD?

Yes, but these exemptions do not apply to any of our clients. However, if you feel you should be exempt, please let us know. These are the exemption categories listed by HMRC:

• Religious beliefs
• Insolvency
• Reasonable practicability, e.g. no internet access

Next steps for MTD to be aware of

Other components of MTD, such as Income Tax (for the self-employed and those with income from property) and Corporation Tax (which will affect all businesses with a turnover between 10k and £85k) have been placed on hold until April 2020 at the earliest. If your turnover is under £10k then you will not be affected by MTD at all.

If you have any queries, please don’t hesitate to get in touch.