Firstly, What is MTD?
Making Tax Digital is a new system intended to make it easier for businesses to get their tax right first time, whether it will or not is still very debatable.
In turn it is anticipated that this will reduce the costs, risk of errors and the worry that businesses face when HMRC has to intervene to put things right. Although the MTD system has been proposed for Income Tax Self-Assessment, Value Added Tax (VAT) and Corporation Tax (CT), it is only VAT that will be subject to the system from 1 April 2019.
Charities will be affected by Making Tax Digital
Any business whose taxable supplies (sales) exceed the current VAT registration threshold of £85,000 in the 12 months preceding 1 April 2019 will be subject to using MTD.
There is no exemption for charities.
If your VAT registration is voluntary, i.e. your annual taxable turnover in the 12 months up to 1 April 2019 is below £85,000, then you can continue to submit your VAT returns through the HMRC portal for now or you can choose to use the MTD system. It will eventually become obligatory for all VAT registered entities.
What is changing
From 1 April 2019, paper records will no longer be sufficient and it will become mandatory for businesses including charities, which fall within MTD to keep digital records and to submit VAT returns directly from accounting software. You will no longer be able to submit your return through the government gateway.
To meet MTD requirements, there is no need to have a complete set of digital records all in one piece of software. If there is a digital link between the pieces of software, records can be kept in a range of compatible digital formats.
Some things won’t change
1. Businesses will not need to adjust their VAT reporting dates and will not be required to provide any more VAT information than they do already.
2. The current exemptions for electronic submissions will also apply to MTD
3. If you authorise an agent – such as The Avanti Group – to submit your VAT return for you, this can still continue however they will need access to your MTD compatible software that holds your records, such as Xero for example.
One important point, relevant to charities, is that only the total for each type of adjustment will be required to be kept digitally, not details of the calculations underlying them.
What are the penalties
HMRC are aware that the upcoming changes are very challenging to businesses and they are proposing a soft-landing period of at least 12 months, with no record keeping penalties. This should allow businesses time to update their systems.
How to prepare for MTD
HMRC are not developing their own MTD compatible VAT software, thank goodness.
If you currently use accounting software such as Xero, you will need to contact your supplier as it will need to be upgraded. If you currently use only spreadsheets and submit your VAT return through the HMRC Gateway, you can contact us to discuss the software options available to you.
If you currently maintain records on paper your processes will need to change. You will need to either get the relevant software yourself and learn how to use it or engage the Avanti Group to do the bookkeeping and quarterly reporting for you.
For further advice contact us