03 Aug MTD for VAT in UK
Making Tax Digital is a revolutionary initiative taken by the UK Government as a first step to making it the World’s most advanced tax system. MTD is a scheme introduced, from effect from April 1 2019, that requires taxpayers with taxable turnovers over £85,000 to file returns quarterly through an MTD- Compliant software by maintaining digital records. The MTD scheme will still be mandatory for companies that have already registered for MTD even if their taxable turnover drops below the threshold over time. Companies that operate with taxable turnovers below the threshold can voluntarily register for MTD compliance.
Records to be maintained:
An important point to note is that filing tax returns online through HMRC’s portal is not the same as being MTD compliant. To be MTD compliant the company has to submit its tax returns through a software which is MTD compliant and which holds all the records required to support the tax returns which are:
- Business name, address, VAT registration number, VAT account, and any VAT accounting schemes used by the company.
- Each supply (both purchases and sales), time of supply (tax point), Value of supply excluding VAT, and VAT charged.
HMRC has reported through a survey that many have misunderstood the meaning of MTD and assumed that they were compliant by submitting tax returns through HMRC’s online portal. HMRC charges a penalty of 400 for those who submit their tax returns through the portal instead of MTD-compliant software.
Advantages of MTD:
The introduction of MTD might have been viewed as a burden by some while it opens a new avenue for greater efficiency and effectiveness. It was also the fear of change that made the advantages explained below as invisible to many.
MTD has brought a solution which saves money for both individual companies as well as HMRC! This scheme aims to reduce tax fraud and honest mistakes made while filing taxes. MTD makes sure that all data is captured in the software which automatically produces returns from the data provided erasing the possibility of human calculation errors and typos. This eliminates the need for refilling taxes made due to manual errors, saving both time and money for both sides.
2. Real-time data/ Increased Visibility:
MTD will now allow you to understand your tax position in real-time by processing the data quicker. You will not need to wait till the year-end to know how much tax you have to pay to HMRC anymore! This will give you more room to properly plan your budget resulting in better financial management.
3. Increased Efficiency:
Since the VAT returns are automatically processed by the MTD-compliant software, you don’t need to waste time calculating your input and output VAT. This, in turn, will give you more time to focus on the core activities of your business allowing you to grow faster.
4. Cloud storage:
Since all your data is stored in the cloud now, you can access your data from anywhere anytime. Moreover, all your financial data will be in one place which will help you understand “the bigger picture” of your business. This will help you glean insights from your business that were not visible before.
MTD for VAT is just the beginning of this revolutionary change. Britain is looking forward to soon move all other taxes to a digital platform. Companies that operate below the £85,000 threshold will also be mandated to comply with MTD from April 2022. Accountifi is well updated with the current trends and would enjoy assisting you through your digitalized journey. We are committed to helping SMEs ensure MTD compliance and understand it better to improve your business.