Since the Government set out the vision for a transformed tax system in December 2015, Grineaux Accountants have been following their movements on Making Tax Digital (MTD), and how this change will affect you and your business. We have now started to take proactive steps within the firm to ensure that we are ready to support you, our clients, through these new changes.

What is making tax digital?

Making Tax Digital is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs – meaning the end of the annual tax return for millions. An overview of MTD from HMRC can be found here.

We have produced for you a brief summary of what you can expect to see when MTD reporting starts on the 1st April 2019 and how this will affect you and your business.

Who does it effect? MTD will affect those of you who are VAT registered AND with a turnover of £85,000 plus. If you are VAT registered but are below the MTD threshold you can continue to submit your VAT returns using the current online portal.

What exactly is changing? To date, the Government has announced that in order to comply with making tax digital, each entity that meets the criteria will need to electronically store their data transactions on “MTD Application Program Interface (API) Compliant Software” and submit their quarterly VAT returns through their chosen software.

What does the data transaction need to include? Data transaction will need to include the following details on each sales and purchase invoice;

  • Net/Vat/Gross amounts
  • Date of invoice
  • Nature of transaction

What will the digital VAT return show to HMRC? HMRC will receive total summaries for the quarter for;

  • VAT due on sales (Box 1)
  • Sales EC VAT (Box 2)
  • Total sales VAT (Box 3)
  • VAT reclaimed on purchases (Box 4)
  • VAT payable/reclaimable (Box 5)
  • Total sales excluding VAT (Box 6)
  • Total purchase excluding VAT (Box 7)
  • Total EC sales excluding VAT (Box 8)
  • Total EC purchases excluding VAT (Box 9)

If H M Revenue & Customs wishes they can then request the detailed data transactions which make up these figures. The data transactions will need to be stored electronically for 6 years, plus the current year.

When does it start? MTD starts as of the 1st April 2019. What this means in practice is, the first quarterly VAT period starting on or after 1st April 2019. Or if using annual accounting, then the first period starting on or after 1st April 2019.

Some of you will have already spoken to one of our partners at your end of accounts year meetings, and we will continue to address all of our clients about what is changing, how this change will affect you, and how you may need to change your current record keeping software/ensure your current software is compliant.