This month we turn our attention to Making Tax Digital and attempt to answer your questions.

What is Making Tax Digital?

HMRC is setting out to make the UK the most technologically advanced tax system in the world. Making Tax Digital (MTD) is their project to make this switch to digital cloud based tax filing.

Will it affect me?

Eventually all UK taxes will be filed under MTD rules but HMRC is phasing in its use. The first phase comes into effect from April 2019. On this date all VAT registered businesses whose turnover if above £85k will have to submit their VAT returns using MTD.

VAT registered businesses under the £85k threshold will not have to use MTD but may if they choose to.

In the next phase starting April 2020 HMRC plan to use MTD for Self Assessment and Corporation Tax from April 2020.

What is changing?

The VAT rules themselves are not changing but what will change is how you keep your VAT records and how you submit your VAT returns.

VAT registered businesses with turnover above £85k will need to keep digital VAT records and submit their VAT returns from MTD compliant software like Xero.

What does this mean if I am already using Xero or other MTD ready software?

There is very little to do if you are already using Xero. You will first need to sign up to submit VAT to a new HMRC MTD account. HMRC has provided us with this video to get this done: https://www.youtube.com/watch?v=kOKD4kHvlzI.

You will then need to link this new account to Xero which will switch on the new VAT portal which Xero has developed. Xero’s instructions on this are found here: https://central.xero.com/s/article/Switch-to-our-new-VAT-return-for-MTD

NB if you are already a Crunchers client and we are doing your VAT returns, we will be doing this for you.

From thereon you can submit your VAT returns through MTD.

What does this mean if I am not using Xero?

If you are not using Xero or other MTD compliant software you have a bigger transition to make because you will need to choose and set up new bookkeeping software ahead of the deadline.

If you are switching to Xero, Crunchers can help you with this process and there are plenty of migration services available to streamline this for you.

Then you will need to follow the steps above to get the software ready and linked to MTD.

What gets submitted to HMRC? Do I need to keep electronic purchase records?

Under MTD each transaction that makes up your VAT return is submitted to HMRC. It means that we cannot lump transactions together in your bookkeeping and submit totals.

Some people are under the impression that MTD means we will be submitting the proof of purchase (receipts, invoices) along with the VAT Return but this is not the case. You can still keep paper records to back up each transaction.

Are there any advantages to moving to MTD?

The main advantage we see is in using cloud bookkeeping software. If you have not experienced this, there are a number of important advantages to the new generation of software that MTD requires you to use:

Bank Feeds – generally these software pull bank information direct into your bookkeeping thereby speeding up the bank reconciliation process greatly.

Apps – they integrate with a plethora of third party apps which also streamlines workflows.

Accessability – they are accessible to everyone anywhere there is an internet connection. This makes collaboration with partners and teams much easier.

Can you help?

Yes – Crunchers can help in a number of different ways depending on your circumstances:

  • Moving your bookkeeping to Xero
  • Getting your Xero VAT Returns ready for MTD
  • Submitting your MTD VAT Returns