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About Making Tax Digital (MTD)

Her Majesty's Revenue and Customs (HMRC) is working towards becoming the most forward-thinking tax authority around the globe by augmenting the customer experience whilst minimising the tax gap. HMRC looks to achieve this through the Making Tax Digital (MTD) initiative, which aims to transmute how the authority will deal with its clients. MTD covers both businesses and individuals through a number of taxes. For companies exceeding the Value Added Tax (VAT) registration threshold, the first tax selected for digitalisation in the United Kingdom is VAT – for most companies (above the VAT threshold) this took effect beginning 1 April 2019. With regards to corporate tax and income tax, MTD will not be made mandatory until April 2020

For Making Tax Digital (MTD) for VAT, there are three main digital components:

  • Digital records: Even though this does not imply that companies in the UK will have to store every receipt and invoice digitally, the business deal data will essentially be stored digitally. The transaction/business deal data comprises of accounts payable (AP) and accounts receivable (AR) and a digital Value Added Tax account from which the VAT return is prepared
  • Digital links: It becomes imperative for Value Added Tax returns to digitally link all digital records – spreadsheets can continue, but they must have ‘digital links’ to basis systems. HMRC has declared a soft landing time-period of 12 months, but, digital links will be compulsory beginning April 2020
  • Digital submission: At present, most businesses submit their Value Added Tax returns by manually re-keying into HMRC’s online portal. This will no longer be permitted once Making Tax Digital comes into force and instead, VAT return submissions must be done digitally via HMRC’s Making Tax Digital API. Digital submission of VAT returns will be required for most businesses for periods starting on or after 1 April 2019

Making Tax Digital (MTD) is a significant initiative, by the United Kingdom government, to make it stress-free for businesses and individuals to get their tax computation accurate and be in compliance with the regulation. Her Majesty's Revenue and Customs (HMRC) aims to grow into one of the supreme digitally progressive tax administrations. Making Tax Digital focusses on making essential alterations in the way the tax structure works – modifying tax administration so that it is:

  • Stress-free for taxpayers
  • More operational
  • More structured

Common misconceptions about Making Tax Digital (MTD)

Misconceptions about MTD

  • Businesses which are below the Value Added Tax threshold will be required to meet the terms of MTD for VAT

    The statement can be reframed as – Precisely which companies qualify for Making Tax Digital for Value Added Tax. Also, how will the organisations outside the scope meet the terms if the present online Value Added Tax return dissolves?

    Clarification: Businesses which are Value Added Tax (VAT) registered, and have an annum taxable income less than the VAT threshold i.e. £85,000 until April 2020 can carry on using the present online Value Added Tax (VAT) return to file annual returns – this possibility will be jammed for those businesses within the range. Though the HMRC encourages companies, below the threshold, to go for Making Tax Digital, however, there is no compulsion. While computing taxable income, an organisation should:

    • Take account of reduced rated, standard rated, and zero rated supplies
    • Disregard out-of-scope and exempt goods

    Once a corporate is required to act in accordance with Making Tax Digital for Value Added Tax, then the requirements carry on even if the income of the business afterward drops lower than the Value Added Tax threshold. Businesses, for MTD for VAT, comprises charities, partnerships, sole traders, and limited companies

  • The VAT threshold will be further decreased to involve more businesses into Making Tax Digital

    Clarification: It is spot-on that the Value Added Tax threshold is being used to regulate which companies will have to act in accordance with MTD for April 2019. The United Kingdom government, in December 2017, issued a call for proof on the Value Added Tax threshold, after an assessment by the Office of Tax Simplification. The decision pertaining to reduction of Value Added Tax threshold will depend on numerous factors and not with an outlook to cover more businesses into Making Tax Digital for Value Added Tax. It might be possible that MTD for VAT could be made obligatory for all Value Added Tax traders with no modification to the threshold

  • Paper records are sufficient so long as the full amount is recorded in Making Tax Digital compliant software

    Clarification: This is inappropriate. It is imperative to record each and every transaction, with some very limited omissions. Just recording the totals from paper records electronically does not meet the conditions of Making Tax Digital. Value Added Tax guidelines need a distinct electronic record for every Value Added Tax supply received or made – the code of practice does permit numerous provisions on a single proof of purchase to be noted down as a single supply. VAT regulations state that the list of facts that must be kept by electronic means may be wide-ranging by the Commissioners unless the Commissioners are content that maintaining facts, as stated, in the directive is likely to be unmanageable, unfeasible or disproportionately time-consuming. It must be noted that, it is not unlawful to keep paper records, however, each transaction must be recorded entry by entry into a compliant software which is likely to be very unproductive but is not illegal

  • Businesses will be required to keep electronic photocopies of all official papers

    Clarification: This is inappropriate. There is no need to scan or keep electronic photocopies of official papers. The guidelines lay down the requirements of keeping the records electronically (fundamentally the primary entry records), however, copies of official papers are not encompassed in this list. The current guidelines covers holding of records, include the requirement to keeping photocopies of official papers, however, these can be paper duplicates too

  • HMRC will get information of each and every transaction, and can use it to initiate investigations

    Clarification: This is not true. The facts that are to be submitted to HMRC, will be similar as they are currently. The obligation to record every single transaction digitally is distinct from the obligation to submit information to HMRC – the requirements pertaining to submission are for totals only. For Value Added Tax, total figures mentioned in each of the 9 boxes on the present VAT return are considered

  • It won’t be promising to use spreadsheets to act in accordance with MTD

    Clarification: The draft guidelines for Making Tax Digital for Value Added Tax insists on using ‘functional compatible software’ for VAT returns. Even though the description does not precisely talk about the use of spreadsheets, however, the illustrations in the draft Value Added Tax notice comprise numerous situations where spreadsheets are used – more clarity is expected in the final version of the notice. Agents and businesses that desire to use spreadsheets, for maintaining records and submitting facts and figures to HMRC, will need to purchase a bridging application from a commercial software supplier – the software must offer the essential link between existing client spreadsheets and HMRC systems. On the other hand, it is technically feasible to develop a spreadsheet that is Application Programming Interface (API) enabled

    Suppliers with software in development:

    Deltek Maconomy Zumzum Sanderson Wholesale Software Mortar Technologies Ice Ledger
    Deloitte Indirect Tax Compliance (ITC) WiseTech Global Limited Sanderson Intelligent Warehousing Moneypenny Production Solutions Hoge 100 Business Systems Ltd
    Datos Professional Solutions Ltd Whistlebrook Financials SA1 Solutions Limited Microsoft Dynamics AX 2012 R3 HeatingSave
    Dappological Limited Web Accounting Solutions Ltd Ryan Tax Services UK Limited Microsoft Dynamics 365 for Finance and Operations Greentree Software
    Customer Focus Ltd VT Software Rhino Small Business App m-hance - Microsoft Dynamics GP Grand Retail MTD Bridge
    Creative Business Systems Ltd Unit4 Digital VAT Red Monkey Software Ltd - Solledger Accounts MHA MTD GPElementz MTD
    CPA Global Software Solutions Australia Pty Unit4 Reckon One Limited Merlin Global Shop Solutions
    Columbus Global TVision Technology Limited RADsite Ltd Meridian Legal Systems Ltd – Solpak Fuelsoft Limited
    Col.Bi GTMS Transport Exchange Group Ltd PwC enterprise (CFT) Maitland Wright - Concept Accounts Flyingboat Wealth Management Software (Fusion Systems)
    Click Dealer VAT Online Tourplan PTP Logma Systems Design Ltd Floral Frog
    Causeway TopNotepad, Inc. ProWare Solutions LMS.NET – MagnaSys Ltd FinancialForce
    CARL Team Profile Technology Ltd Lawsyst – Legal Practice Billing Software EzyBooks
    CAPITA Integrated Business Solutions TaxPal Probity MTD LambdaTek Limited Exact Software UK Ltd
    CalCal Taxback International Practice Evolve Label Traxx Epicor Software Corporation
    BusinessGT Syngco Ltd Pracctice Limited – Osprey Approach Keytime Epaccsys MTD VAT
    Brightbook Swan Retail Ltd Powered Now Key Group MTD UK ENIAC Computing
    Bridge SQ SUM-IT Pinnula Ltd – Uniplan ERP Kavina Systems Ltd Elesar Ltd
    Border Software Ltd Streets Heaver Computer Systems Limited PIKON Integrated MTD-VAT Connector for SAP Kamarin eAccs
    Border Merchant Systems Ltd Softlink Solutions Limited Optimise Systems Ltd. Prodigy VAT Submission JustAccounts Limited Dragon2000 Ltd – DragonDMS (MTD for Motor Dealers)
    Bokio SmartPropertyManager.com Optimise Solutions Ltd Jonas Club Management DPS Financial Director
    att.it{ude} SIMS FMS6 MTD OneUp.com Johnston Smillie Chartered Accountants Diomac
    Atos SimplyVAT - SVAT (Non UK registered businesses only) Onesys Global MTD module Integrated Management Solutions (Global) Ltd DIBS - Dataflair Integrated Business Systems Ltd
    AMANA consulting GmbH Scribe Accounts Odoo - UK Open Source ERP by OpusVL Integrated Concepts (ShenZhen) International Limited

    Deltek WorkBook
    Agathos Systems SAP NHS Shared Business Services Information DataHub  
    Adsoft Solutions Ltd Acute Books LTD Accounting Office Software Ltd Essentia Global Services  

  • Free Making Tax Digital software will be available

    Clarification: It will depend, however, it is doubtful that any software provider will offer free software to agents. The United Kingdom government has made no assurance to offer free software for Making Tax Digital for Value Added Tax

  • Digitally excluded companies will be forced to meet the terms

    Clarification: There will be exemptions for companies which are digitally excluded; these are protected in law. The exemptions includes organisation that do not use computers for spiritual reasons and those who are not capable for complying because of disability, age, or location

  • Businesses will be required to make three-monthly payments of income tax

    Clarification: There are no present plan to modify payment dates for Income Tax, Value Added Tax, and Corporation Tax. HMRC did refer to voluntary pay in 2016, however, this has not been discussed any further

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