What is Making Tax Digital?

Making Tax Digital (MTD) is the government’s programme to transform the tax system and move it fully online. MTD will affect VAT registered businesses from April 2019 with further changes expected in 2020 and beyond.

If you’re VAT registered, or close to the VAT threshold, and you don’t currently use a digital accounting package (such as Crunch) to record your VAT information, then you need to start planning for MTD now. Get a free consultation from one of our expert advisors to see how we can help your business get MTD ready.

Who is affected by MTD?

Currently, any VAT registered business needs to be preparing for MTD. These businesses already have to report and pay any VAT due quarterly so the main change is the requirement for VAT records to be stored digitally and sent to HMRC using MTD compatible software. The days of just using excel spreadsheets or paper ledgers are over!

  • Why is Making Tax Digital happening?

    Making Tax Digital is set to modernise the way the tax system works, making it more effective and more efficient. The government has stated that MTD is being put in place in order to make it easier for self-employed individuals and businesses to get their tax right and keep on top of their accounts.

  • How do I prepare for Making Tax Digital?

    If your business is above the VAT threshold (currently £85,000 turnover) then you must register for VAT. Starting on 1st April 2019 if you are above the threshold then you will need to have digital records to capture all your business transactions and prepare and submit your VAT return to HMRC using some form of compatible software that can send and receive information automatically.

  • What happens if I’m not ready for MTD?

    Your first MTD return will be for your first VAT period that STARTS after 1st April 2019. If you’re VAT registered and do not fulfil your MTD responsibilities, you’re liable to receive penalties from HMRC. If you aren’t VAT registered, there are no requirements for you yet, but it’s worth keeping in mind, especially if you’re near the registration threshold which is a ‘Vatable’ turnover of £85,000.

  • How can Crunch help?

    Our easy-to-use online accounting software can save you time, stress, and better still, comes with real built-in accountants. We’ll answer all your questions and give you advice on ways to save money and make your business more tax-efficient. We make it easy to issue invoices, record all your expenses and calculate all your taxes, taking care of HMRC and Companies House.

  • Does MTD mean I have to file my VAT return more often?

    No, MTD does not change how often you need to file, or what information you need to send to HMRC. It is simply a change in how you have to keep your records and how you file your quarterly return.

  • Is Crunch MTD ready?

    Yes Crunch is MTD ready. We’ve been working with HMRC for some time and our software has been confirmed as compatible by HMRC. We are on their list of approved suppliers. If you’re not yet a client, find out about switching to Crunch.

Making Tax Digital explained

Watch our recent webinar to learn the basics of Making Tax Digital, who it affects and what to do if you’re concerned about it.

Your MTD Questions answered

Do I have to register for MTD?

If you are above the VAT threshold then you have to register for VAT, include VAT on all your invoices and submit quarterly returns to HMRC. After 1st April 2019, you’ll need to be MTD compliant. If you’re using software for your business finances such as Crunch then your software provider should be looking after all of this for you. If you’re not yet using software, then you’ll need to start so your records are stored digitally and your VAT return is filed online to HMRC.

What if I'm voluntarily registered for VAT do I still need to file using MTD?

If you are VAT registered voluntarily – ie your company’s Vatable turnover is below the £85,000 threshold – there is no mandatory MTD requirement. Whilst it’s not mandatory, it’s probably still a good idea. At Crunch we are registering all of our VAT registered clients for MTD regardless of their turnover and whether their registration is voluntary or mandatory.

HMRC requires you to register for VAT if you exceed the threshold over a rolling 12-month period, or if you expect to exceed the threshold over the next 30 days. So you must keep your business’ level of turnover under close review.

Do you know what your business’ turnover is? If not, maybe you should use online accounting software like Crunch that gives you a clear picture of your finances.

What is MTD compatible software?

The MTD rules say you must use ‘Functional Compatible Software’ - that means a software program, or set of programs used to keep digital records, send information and returns automatically from data held in the digital records, and receive information from HMRC via an Application Programming Interface (API).

If you currently use Excel to capture information about your business’ VAT, then at the very least you would need API enabled bridging software to connect to HMRC systems. However, you will probably find it easier to use an approved software provider like Crunch to help keep your VAT records and filings future proofed.

What records do I need to keep digitally?

You need to store the following standing data as specified by HMRC:
- Your business name
- Address of your principal place of business
- VAT registration number
- A record of any VAT accounting schemes used

For each supply you make to customers (output VAT):
- The date of supply
- The value of the supply
- The rate of VAT charged

For each supply you receive (input VAT):
- The date of supply
- The value of the supply including any exempt or zero rated VAT
- The amount of input tax that you will claim

Your VAT account, including:
- The output tax due on sales
- The output tax due on acquisitions from other EU member states
- The tax payable on behalf of your supplier under a reverse charge procedure
- The tax that needs to be paid following a correction or error adjustment
- The input tax claimable from business purchases
- The input tax allowable on acquisitions from other EU member states
- The tax reclaimable following a correction or error adjustment
- Any other necessary adjustment required by VAT rules.

When do I need to start keeping digital records?

Digital records will be required to be kept from 1st April 2019.

When do I need to have MTD ready software in place?

Digital records are required to be in place from 1st April 2019. It would be ideal, perhaps, to have accounting software in place at the same time.

However, it may be that some businesses may not have software in place at the outset and, theoretically, it could be possible to ensure that digital records are in place, and these could be fed into the software when it becomes available. It would certainly need to be in place to enable your business’ first VAT return for a quarter commencing after 1st April 2019 to be able to be filed under MTD.

What is the soft landing period?

For VAT periods starting in the 2019/20 tax year, businesses will not need to have digital links for all software and will be able to manually transfer or cut and paste their records instead.

However, this does not include the submission of the VAT return itself, which must be shared with HMRC using an API.

For MTD, Businesses must have the digital record keeping in place, and an API enabled product ready to send their VAT returns once they are mandated to do so.

Does MTD affect me if I'm not a sole trader?

There is no difference, if you are VAT registered and your turnover is above the VAT threshold, then the rules apply whether you are a sole trader or a limited company

Does this mean extra admin for business owners?

Many things are not changing: Still the same VAT return frequency, the same payment deadlines, the same eligibility for schemes. So MTD for VAT is not changing what you do - but how you do it.

Are there fines if I don’t comply?

In a word yes. - HMRC have said they don’t issue penalties just to raise revenue, and that they will be lenient where businesses are doing their best to comply, but there will be sanctions for deliberate non-compliance.

There are no loopholes – everyone who is VAT registered and above threshold has to do it via MTD. You may face penalties if you don’t.

They are taking away the ability to use the old system.

There are no transitional arrangements – though there is a soft landing period for links to other financial software, but not for your VAT filing

Will MTD extend to other taxes other than VAT?

We believe that it’s very likely that HMRC will extend this out to other taxes as they look to transform their systems and improve compliance and efficiency. It isn’t called ‘Making VAT Digital’, so it’s likely that at some point in the future, MTD will expand to include personal tax information. As this would affect the 10 million people who currently submit an annual Self Assessment return, it’s perhaps unsurprising the government has delayed implementing MTD more widely for the time being.

When and how can we register for MTD?

The MTD service is effectively open for business now. Businesses can sign up for MTD via the GOV.UK website.

Businesses who have an agent should discuss with their agent and ensure that actions are aligned. Businesses should only be signed up when they are ready, i.e. they have digital records and MTD compatible software.

I’m still using accounts ledgers and paper receipts…does that mean I have to change my whole accounting system?

If a business has a taxable turnover above £85,000 then they are required to submit their VAT returns under MTD. This would require the business to have digital records and submit via MTD enabled software, which could include spreadsheets with a digital link.

Paper invoices would remain valid, but if all the information is in the digital records they would not need to be scanned/kept.

Does digital record keeping go so far as having to keep a digital copy/picture of receipts even if they are entered into accounting software?

If all the required information is held within the accounting software then there would be no need to keep copies.

Do we need to scan and store images of purchase invoices and expense receipts on our MTD compliant system?

If the required information is held within accounting software there is no need to keep further copies. If you choose/need to keep copies these can be paper or digital.

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Need Making Tax Digital advice?

If you’re a Crunch client already then please speak with your client manager. If not then call us on 0333 920 4791 or complete the form to find out more about how we can help you with MTD.