Making Tax Digital (MTD) for VAT is coming into force in less than one month, from 1 April 2019.
Fortunately for our clients, this is no cause for worry – as Xero Platinum Partners, we’ve already helped hundreds of businesses to become MTD-ready by switching to HMRC-approved software.
But for VAT-registered businesses that have yet to make the change to digital accounts, time is running out. If you’re one of those businesses, what do you need to know before the deadline?
What is Making Tax Digital?
MTD is a government initiative to digitise the tax system. It’s being rolled out in stages, with the first compulsory stage applying to VAT.
Those included in MTD for VAT will have two main responsibilities: to keep their VAT records digitally and report them to HMRC using compatible software.
Why is it being introduced?
HMRC says the regime is part of its ambition to become “one of the most digitally advanced tax administrations in the world”.
It’s intended to make the tax system more modern and efficient, in turn making it easier for businesses and individuals to report and pay the right amount of tax.
In theory, this should help to reduce the gap between the amount of tax HMRC thinks should be paid and what is actually paid – a figure that was estimated at more than £33 billion for the 2016/17 tax year.
The benefits are not limited to collecting more tax, though. Digital accounting software can also save time and money for businesses, through increased automation and better capacity for collaboration.
For this first stage of MTD, VAT-registered businesses with a turnover of more than £85,000 will be required to comply with the filing and record-keeping requirements.
Eventually, though, HMRC plans to include all tax outside of PAYE in the scheme. This means other businesses and individuals should be aware of MTD, though no start dates have been confirmed to include them.
When does it start?
The rollout of MTD begins from 1 April 2019, with the start date for each business depending on their VAT return quarters.
There’s also an extension to the deadline for a small number of organisations with more complex needs, meaning they won’t be mandated into the scheme until 1 October 2019.
HMRC has sent individual letters to those businesses with a deferred deadline, but speak to us if you’re not sure whether you fall under this category.
Making Tax Digital timeline
Here are the main upcoming dates to keep in mind.
1 April 2019: MTD for VAT comes into effect. This is the start date for businesses with VAT return quarters ending 30 June, 30 September, 31 December and 31 March.
1 May 2019: MTD start date for businesses with VAT return quarters ending 30 April, 31 July, 31 October and 31 January.
1 June 2019: MTD start date for businesses with VAT return quarters ending 31 May, 31 August, 30 November and 28 February.
1 October 2019: MTD for VAT comes into effect for a selection of complex businesses.
1 April 2020 (at earliest): MTD for other taxes, including income tax and corporation tax, could come into effect.
If you haven’t done so already, the most important part of preparing for MTD for VAT is choosing the software you’ll use. You’ll also need to make sure your staff are up to speed with the new system, so the transition is as smooth as possible.
We can help with both of these tasks, giving you less to worry about. Plus, our expert knowledge of Xero means we can offer any support you need, and help you get the most out of the software going forward.