Making Tax Digital (MTD) – What Do I Need To Do?Written on July 2, 2018 by Kirk Rice LLP
The Question:
I have a small business which is VAT registered. As my business is quite simple, I keep a record of my transactions on an excel spreadsheet. However, I have heard that a new system is being introduced next year by HMRC which means I have to keep my accounts on proper accounting software. Is that correct?
Kirk Rice LLP answers:
You are correct that HMRC will be introducing new requirements that are known as Making Tax Digital (MTD). MTD imposes a requirement to keep records digitally and file VAT returns using functional compatible software from 1 April 2019.
Records required to be kept digitally
Some records will need to be kept digitally. HMRC will provide a list of acceptable software that can be used in due course (called functional compatible software). This software will maintain the mandatory digital records, calculate the VAT return and submit it to HMRC.
The following information needs to be maintained digitally:
- business name
- address of the principle place of business
- VAT registration number
- record of any VAT accounting schemes used
For each supply made, it is necessary to record digitally:
- the date the supply was made
- the value of the supply
- the rate of VAT charged
- the total value of standard rate, reduced rate, zero-rate, exempt and outside the scope supplies made
For each supply received, the following is to be recorded digitally:
- the time of the supply
- the value including any VAT not claimable
- the amount if input tax to be claimed
The VAT account is the summary of VAT transactions, and is the audit trail between the business records and the VAT return; this must be kept digitally.
The following also needs to be recorded for each VAT period:
- output tax due on sales, EU acquisitions, reverse charges and any corrections or adjustments
- input tax claimed on business expenses, input tax allowable on acquisitions, any error or adjustments.
The details of adjustments do not need to be kept digitally, only the total for each type of adjustment. Where a retail scheme is used, the record of Daily Gross Takings (DGT) must be kept digitally
The functionally compatible software will calculate the return from the digital records. The business will be required to make a declaration that the details are correct, and then submit the return through the government gateway. Accountants, if authorised, can also submit returns on behalf of the business.
MTD is a major change to the way VAT is to be accounted for. MTD will also be extended to other taxes in the near future. Businesses need to ensure that their software is compatible and should contact their software suppliers regarding this.
HMRC say that businesses can continue to use spreadsheets, BUT the data within them needs to be digitally transferred to functionally compatible software in order to file the VAT return with HMRC, so there seems little point in not moving away from spreadsheets altogether.
Any reader interested in discussing this topic further can telephone Graham Jennings on 01344 875000 in our Ascot office or James Moody on 020 8789 8588 in our Putney office. You can also email info@kirkrice.co.uk.
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Any reader interested in discussing this topic further can telephone Graham Jennings on 01344 875000 in our Ascot office or James Moody on 020 8789 8588 in our Putney office. You can also email info@kirkrice.co.uk
Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made.
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