Making Tax Digital (MTD) is the Government’s plan to move all taxpayers onto a fully digital tax system. The intention is to make it easier for both businesses and individuals to pay the right amount and remain on top of their tax affairs. It will also see the end of tax returns for a large proportion of the British public.
You will be given a Personal Tax Account (PTA), which will be pre-populated with information HMRC already holds on you. Through this digital account you will be able to report any additional sources of income you might have.
To register for a PTA, you can visit this site. Once the system is implemented, and as long as your tax affairs are straightforward, you may not need to file a tax return again.
If your business’s turnover is higher than the VAT threshold (£85,000), you are now required to keep digital records for the purposes of VAT from 1 April 2019. This information will be reported to HMRC via MTD compatible software. The requirement to report this information will remain, even if your turnover falls below the VAT threshold.
This applies to VAT only.
Maintaining digital records and providing quarterly updates via MTD compatible software for other taxes will not be made a legal requirement prior to April 2020.
If your business falls below the VAT threshold, but you have registered for VAT voluntarily, you can opt into the Making Tax Digital system.
If you are the member of a religious society or order where the use of electronic communications does not conform to your beliefs, you can apply for exemption from MTD
Similarly, if for reasons of age, disability or the remoteness of your location it is not practical for you to make an electronic return, you can apply for exemption. Other reasons of impracticality will also be considered by HMRC.
You will have a right of appeal if your application for exemption is turned down.
You will need to use what is defined as ‘functional compatible software’ to comply with HMRC requirements.
This means software that connects to HMRC’s systems via an Application Programming Interface (API). It can be a single program or a set of programs, so long as those programs are ‘digitally linked’.
Your software must be able to:
- Retain and preserve records digitally
- Create VAT returns and send them to HMRC digitally
- Voluntarily provide HMRC with VAT data
- Receive information from HMRC that your business has complied.
The major difference is that you will be required to submit your digital records at least once every three months.
Your business will also be required to maintain records for your VAT account.
All digital records will need to be retained for a minimum of six years.