First introduced by the government in 2015, the Making Tax Digital (MTD) initiative is meant to improve the efficiency of the UK tax system. According to the latest tax gap figures, most customers want to get their tax right, but many find the system difficult to navigate.
It is estimated that the current system costs the Exchequer a startling sum of over £9 Billion annually due to tax errors and mistakes. MTD will require businesses to make certain adjustments to their taxing procedures.
Companies that are registered for VAT and have annual turnovers of more than £85,000 will be required to keep digital records and submit these to the HMRC via MTD-compatible software starting from April 2019. These records would contain information such as the business’s name, location, VAT registration numbers, audit trails between primary records and the VAT return, and details pertaining to supplies made and received. To top it all off, these records will have to be preserved for a minimum period of six years.
The cost the businesses would have to bare would mainly be one-off costs and ongoing costs. The one-off costs would be borne in the transition period, such as purchasing of new software, upgrading to the MTD standards, implementing the compliance code, and staff training. Whereas on-going costs would include the process of moving to an MTD compatible software, introducing bridging software to make spreadsheets compatible, and additional software costs due to MTD-software improvements and upgrades over time.
Businesses that are unable to use electronic communications, insolvent businesses or businesses that are unable to submit returns electronically would be exempt from MTD for VAT. However, businesses that are not required to keep digital records are encouraged to participate on a voluntary basis.
Businesses will also be able to submit VAT data on a more frequent basis than is mandated, especially in cases where they wish to notify the HMRC of circumstantial changes in their company. As far as amendments to VAT returns are concerned, existing correction rules would apply.
Over the coming months, we will be running a series of Blogs on MTD and post updates as they occur.