Making Tax Digital (MTD) is an initiative of UK government in order to revolutionise its taxation system and become one of the most advanced tax authorities in the world. The intention behind the introduction of Making Tax Digital is to make the tax system more effective, efficient for the tax payers. MTD transformations projects are taken care by the Her Majesty's Revenue and Customs (HMRC) and it sets out a vision for the end of the tax return and a transformed tax system by the year 2020.
Making Tax Digital will affect not only the individuals but also the businesses and other organizations and agents; and how they maintain their accounting and tax records as well their communication with the HMRC, which is of the belief that this new and improved tax system will require the majority of business owners and organizations to maintain digital records using the compatible software. HMRC is also working closely with various developers in order to develop accounting software to have an easy and smooth switch to digital tax.
It must keep all the records in the digital form.
The records must be preserved in its original format for at least 6 years.
It must be able to create a VAT return from the digital records.
It must be able to provide HMRC with the information regarding the VAT return of the businesses digitally.
HMRC, if so desired, should be able to fetch additional information from the software.
It should also incorporate and fetch information from HMRC about the business's compliance record.
It is possible to make the VAT calculation outside the software either on a spreadsheet or manually and enter the effect of the calculation back into the software and thus can submit VAT return directly from the software.
Another option is to export the data from the software into a spreadsheet along with the adjustments and VAT return calculation and extract the VAT return figures with the help of either API enabled spreadsheet or bridging software and then submit the figures to the HMRC.
If there is any religious belief which is not in synchronization with the use of electronic communications – However, in order to avail the exemption, you must apply to the HMRC via the VAT helpline and the present standard evidence for not reasonable practical will be considered for exemption from online filling for VAT returns.
If there is a reasonable and valid ground such as age, disability. Remoteness of location or any other reason: Businesses falling under this section can still choose to file their VAT return digitally, however if they want to withdraw their election at a later time provided they still fulfill the exemption criteria. Also, if a VAT registered business's taxable annual turnover falls below the registered threshold after previously exceeding it, then it must comply with the requirements of Making Tax Digital.
Subject to an insolvency procedure.
If you have registered under VAT voluntarily and are trading under the VAT turnover threshold.
Timing: As per the Making Tax Digital proposal, it is scheduled to commence from 1st April 2019 which is exactly the time of Brexit and thus there is lot of uncertainty around the VAT treatment of transactions between the UK and European Union. So, it has become important for the businesses to both understand any changes to tax rules as well as to ensure that their accounting systems deal with such transactions correctly.
When will the changes happen to Making Tax Digital?
April 2017: Private pilot of roll-out starts.
July – December 2017: To give an overview of taxpayers liabilities in one place and private pilot of Making Tax Digital for VAT in another.
Spring 2018: To start with live pilot of Making Tax Digital for VAT.
April 2019: In order to give businesses (whose turnover is above the VAT threshold) a first-hand experience of Making Tax Digital initiative, they have to maintain their records manually and also submit their quarter returns for VAT purposes only through their accounting software.
April 2020: HMRC aims to widen the scope of Making Tax Digital by making it a vital and indispensable part of every business and their advisers.
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