What is Making Tax Digital?
MTD – at this stage – is more accurately MTD for VAT. That means that HMRC has pushed through a requirement for most VAT registered businesses with effect from 1 April 2019 to use MTD compatible software to
• capture business transactions
• prepare the VAT return
• send information to and receive information from HMRC via API enabled software.
It is important to understand that many things won’t change, such as the VAT return frequency, payment deadlines and eligibility for VAT schemes. So really MTD for VAT is not changing what you do, but rather how you do it.
The details of MTD for VAT are laid out in VAT Notice 700/22.
Who is affected – and when?
According to Section 2 of VAT Notice 700/22 the following applies:
• VAT registered entities with a taxable turnover above the VAT threshold must follow the MTD rules.
• The VAT threshold currently stands at £85000.
• MTD applies from the first VAT period that starts on or after 1 April 2019.
So, if your business operates at below the VAT turnover threshold but you are VAT registered you are not mandated to follow MTD requirements, although you might choose to do so especially if your turnover is close to the threshold.
Can I still use spreadsheets or non MTD compliant software?
Yes, in short, but you will need some bridging software which is API enabled and will make the link between your systems and HMRC’s servers. There must also be digital links between the various bits of accounting software you might be using.
Bridging software is a digital tool which will connect accounting software to HMRC systems – see Sect. 3.2.3.
A digital link is an electronic or digital transfer of data between software programs, products or applications. There can be no manual intervention or re-typing of information from one product to another, nor copy and pasting, but can include the use of XML import/ export, macros or linked cells in spreadsheets. See Sect. 3.2.1.
What records must be kept digitally?
| Designatory data | Supplies made | Supplies received |
| Business name | Time of supply (tax point) | Time of supply (tax point) |
| Principal business address | Value (net value excluding VAT) | Value |
| VAT registration number | Rate of VAT charged | Amount of input tax you will claim |
| VAT accounting scheme |
What about adjustments?
Adjustments can be made but you must record the total for each type of adjustment. The calculation of the adjustment does not have to be done in the MTD software and the result of any adjustment calculation can be entered manually into the MTD software. See Sect. 3.4.
How do I go about choosing MTD compliant software?
It goes without saying that QuickBooks is fully MTD compliant. Contact us to discuss moving over to QuickBooks® from your current accounting system.
In addition HMRC have compiled a list of software suppliers that are supporting MTD for VAT.
