Making Tax Digital comes into effect for businesses

The government’s major Making Tax Digital programme became law on 1 April for over one million VAT registered businesses earning over £85,000.

The new rules, first announced in 2015, will mean most businesses above the VAT threshold will need to keep their records digitally and submit their VAT return using MTD-compatible software for VAT periods starting on or after 1 April.

According the Federation of Small Businesses, the software required to meet MTD obligations is set to cost small firms £564 each on average.

Nearly 100,000 businesses have already signed up to the new service. Over 4,000 businesses are now signing up to MTD every day to experience a more integrated approach to business and tax.

HMRC knows businesses will require time to become familiar with the new requirements. During the first year of VAT mandation, HMRC will take a light touch approach to penalties by not issuing filing or record keeping penalties where businesses are doing their best to comply with MTD.

Mel Stride MP, Financial Secretary to the Treasury, said: “Delivering Making Tax Digital for VAT is the first step toward our ambition to create one of the most digitally advanced tax authorities in the world.

“The rules that come in from today will give businesses more control over their finances, allowing them to spend their time focusing on innovation, growth and the creation of jobs.”

Theresa Middleton, Director of the Making Tax Digital for Business Programme, said: “Tens of thousands of businesses joined our pilot over the last 6 months and have helped us to test and improve the live service ensuring we have the right support in place to help people transition.

“Now is the time for those businesses affected by MTD who haven’t done so already to begin preparing to switchover and start experiencing the benefits MTD has to offer. You don’t necessarily need to sign-up from day one, but you do need to make sure you’re keeping your records digitally for your next VAT period which starts on or after 1 April”

FSB Regional Chairman, Chris Manka, said: “Given the burden that MTD has placed on small business owners, it’s vital that the Government makes good on its commitment to light-touch enforcement. The software required to comply with MTD alone is setting small firms back by hundreds of pounds and that’s before you get to the time and resource needed to negotiate new software."

 

What do businesses need to do now?

• If you have not prepared, do not panic. 1 April is not a cliff edge for sign-ups, the first returns under the new system for the majority of businesses, who file VAT quarterly, won’t be due until August at the earliest.
• Accountants or other tax representatives will already be aware of MTD and will advise businesses how and when they need to make changes to be ready for the new service.
• Those already using software will simply need to ensure it’s MTD-compatible then sign up to the new service and authorise their software for MTD.
• For those who are not using an accountant or don’t currently use software, it is quick and easy to sign up and there is lots of information available to help them prepare, including about what software is available.
• Take steps to find out if your business is affected by the Making Tax Digital changes and what you need to do if it is. Most businesses above the VAT threshold have to start keeping their records digitally and sending their VAT return to HMRC direct from their software for VAT periods starting on or after 1 April.
• Talk to your accountant or agent – if you use one to manage your VAT affairs - about how they are making returns MTD-compliant.
• Speak to your software provider if you already use software to ensure it will be compatible.
• Those businesses that are either not represented by an accountant and/or do not already use software will need to select software to use and sign up to MTD, then authorise their new software for MTD. The GOV.UK webpages provide information on a wide variety of products, from free software for businesses with more straightforward tax affairs, to increasingly sophisticated paid solutions. There are also products that can be used in conjunction with a spreadsheet for those businesses that don’t want to change their underlying record keeping system.

Guides for businesses, agents and others are available here:

• https://www.gov.uk/guidance/use-software-to-submit-your-vat-returns