Starting from the beginning of this month, and three years after the first announcement, Making Tax Digital will be in force for businesses that are VAT registered and therefore turning over more than £85,000 per year.
These businesses will need to use specialist accounting software to keep track of their business records and then use the software to 'digitally' submit their VAT returns for each of their VAT periods that occur after April 1st.
Not every business is being forced to sign up, however, there must be a good reason for the Taxman to allow the business to continue using the old method. 1.2 million businesses are required to sign up to Making Tax Digital but as of now around 130,000 are using the service - with 4,000 a day being added.
Penalties will be dealt with fairly during this introductory period as HMRC states they understand the technical and migratory hurdles associated with a change as big as MTD.
The initial pilot period conducted over 6 months prior to this launch saw many teething problems ironed out and the Taxman is hopeful the new approach to tax administration will be the most advanced in the world with a much lower error and omission rate.
If you would like to sign up to the service and use software to keep track of your business records, and then submit your returns using the same software you can register for MTD even if you are below the VAT threshold.
- VAT-registered businesses (turnover above £85,000) can sign up for Making Tax Digital, however other businesses can voluntarily choose to do so.
- For the initial Making Tax Digital for VAT launch you need to keep track of your business records digitally. This means storing your business records in specialist software compatible with MTD for VAT.
- Records to keep include: Supplies made and received and the rates of VAT on each.
- When the time comes to submit your VAT return, you use your chosen specialist MTD software to submit the records to HMRC digitally.
The link to join is gov.uk/guidance/sign-up-for-making-tax-digital-for-vat
A similar system for administration of incomes taxes is currently in trial phase. It also requires businesses to keep track of all business records, invoices etc within specialist software and then use that software to submit tax returns, vat returns and notify of other income changes. The trial is open to self-employed/sole traders who have a single trade and/or landlords.
You can read more about Making Tax Digital and the trial progress so far in our other articles.