5 Things You May Not Know About Making Tax Digital

Making tax digital is rapidly approaching

As Making Tax Digital is rapidly approaching here are 5 things you may not know!

There is a lot to understand around its implementation and who it will apply to in April 2019. Our blog for July, Making Tax Digital for Business, covered the main points on MTD however, this blog seeks to inform you of the 5 things you may not know about making tax digital, but will need to know before implementation.

Only applicable to VAT registered businesses with turnover in excess of £85,000

Those that will be mandatory to comply with MTD for VAT from April 2019 will be businesses, be it sole traders, partnerships or limited companies, with a turnover over £85,000 (current VAT registration threshold) in a rolling year. For those that are VAT registered either voluntarily or their turnover is now below the registration threshold will not be required to comply with MTD from April 2019, and can continue to file their returns via their current method. Businesses that do not have to comply with MTD can choose to waive their exemption and follow the requirements of MTD voluntarily.

The first return to be submitted under MTD will be for VAT periods that start in April 2019

Making Tax Digital will come into effect from 1 April 2019, meaning that all VAT return periods starting in April will need to be prepared under MTD rules. So if you submit your VAT returns quarterly, the 1st quarter to be submitted will be April – June 2019, if your quarter end is May, the first return to be submitted under MTD will be June – August 2019. For those on the VAT annual accounting scheme, again the first return under MTD will be when the start of the period of the return is after 1st April 2019. For example if your scheme runs from 1st January to 31st December, the first return under MTD will be for the period January 2020 to December 2020.

Every sales transaction will need to be recorded individually, unless the business is using a VAT retail scheme

Under the MTD regime, every individual sale will need to be recorded within the digital software. However, if a business accounts for VAT using a retail scheme, you can keep a record of the total daily gross takings and will not be required to keep a separate record of the supplies that make up the figure. The retail scheme applies to businesses making “retail sales” of goods or services to consumers (i.e. not businesses that are VAT registered). A company can join a retail scheme at the beginning of any VAT period and does not need to tell HMRC, however it is recommended that a board minute is made to document this change.

Those on VAT cash accounting will not need to record sales or purchase invoices until payment is made

For those businesses who use VAT cash accounting, HMRC consider the time of supply of a transaction to be when the business receives payment for the supply and therefore it is acceptable that these businesses would not need to keep a sales and purchase ledger for VAT purposes. Those on the standard VAT scheme will need to record sales and purchase invoice on the date of issue rather than the date of payment within their digital software.

Although businesses are required to have digital records, paper records can continued to be used alongside

If a business has a current method of maintaining its information that is not digital or on functional compatible software but works well, they can continue to use it but will need to maintain the relevant digital records to enable the VAT return to be submitted digitally. They will need to maintain digital records for specific information such as details of all sales, details of all purchases, business name, principal business address and VAT number. Also, if a business received a paper invoice from a supplier they will have to keep that original copy unless that invoice is scanned and retained within the digital software with all the details required for VAT purposes. In this case the business does not need to keep the original invoice.

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