What you need to know about Making Tax Digital


HMRC initiative Making Tax Digital (MTD) aims to make it easier to get tax right. With avoidable mistakes costing the Exchequer over £9 billion a year, MTD offers improved accuracy, in-built help for software products and reducing the risk of tax records getting lost in transit. While this is a great step forward for business accounting, many organisations are confused as to what exactly this means.

Changes in reporting, how records are kept and what software can be used leaves businesses grappling with how to report correctly under the new initiative. We answer some of the most frequently asked questions, in time for the first VAT returns deadline under MTD on August 7th, 2019.  

Who does Making Tax Digital affect and when?

From 1 April 2019, most VAT-registered businesses with a taxable turnover above the VAT threshold (£85,000) are required to use the MTD service to keep records and submit VAT returns. For businesses on standard quarterly VAT reporting, the deadline to submit VAT under MTD is August 7th 2019.For taxes other than VAT, Making Tax Digital will not be mandated until at least April 2020.

Records can be submitted by yourself or an authorised agent, such as a professional accountant or tax advisor that meets HMRC’s standard for agents.

Am I required to keep digital records for VAT purposes?

Yes, under MTD for VAT, businesses that fit into the above category will be required to keep digital records of anything required to complete your tax return. Records can be kept digitally using MTD-compatible software (Xero, Sage etc.).

Do I need to use Making Tax Digital software?

You will need to use MTD-compatible software which supports the keeping of digital records and exchanging data digitally with HMRC. This may include more than one software application, in which case data that flows between applications must also be exchanged digitally.

HMRC are providing a one-year ‘soft landing period’ for businesses to ensure digital links between software products. Before 31 March 2020, cut and paste will be accepted as data transfer.

What if my turnover fluctuates around the VAT registration threshold?

If, in the 12-month tax period, your taxable turnover exceeds the VAT registration threshold (£85,000), you will need to use MTD to submit your VAT return. If in the 12-month period, your turnover is under the VAT registration threshold, you are not required to use MTD, but it is recommended to keep up the practice.

Are there any exemptions to submitting returns online?

Yes. While most businesses will need to keep digital VAT records and use software to submit VAT Returns, there are some exemptions to submitting returns online. HMRC have stated that businesses that cannot go digital will not be required to do so, taking into account religion, age, disability and location.

For help or more information about Making Tax Digital and for support with your VAT returns and compliant record-keeping, contact DSA Prospect.