Making Tax Digital

Presented by Anne Cianchi ACA

22nd May 2018

What is Making Tax Digital?

Making Tax Digital (MTD) is a government initiative to digitalise the UK tax system.

Businesses and landlords will be required to maintain their records digitally and make data

submissions to HMRC using MTD functional compatible software.

Who will be affected and when do the changes come into force?

VAT - From April 2019 all VAT reporting must be made using MTD compatible software if the

turnover of the business is in excess of the VAT threshold (currently £85,000).

All other taxes (income tax and corporation tax) -

The government will not widen the scope of Making Tax Digital beyond VAT until the system

has been shown to work, and not before April 2020 at the earliest.

The Vision

Holding all information in one place

All data collected at source

No duplication

Reduce mistakes

Reduce the ‘Tax Gap’

Data collection across the UK

The Tax Gap

Timeline for MTD

April 2019 April 2020? ????

VAT

All VAT registered

businesses over the

VAT threshold

????

Income Tax

Businesses &

Landlords

>£85k

Corporation Tax

Businesses &

Partnerships

>£10m

MTD - VAT

Requirements

From April 2019 businesses above the VAT threshold will have to:

Keep records in digital form Preserve those records for 6 years Submit VAT return (9 boxes) Provide extra voluntary information Receive information from HMRC

MTD - VAT

Who will be affected?

• VAT registered UK businesses with a turnover equal to or in excess of the compulsory VAT registration threshold (currently £85,000).

• Note - Once in cannot get out!

Who won’t be affected?• VAT registered UK businesses with a turnover under

£85,000 will not be required to make MTD reports but will be able to do so voluntarily.

• The exemptions that already apply to electronic VAT returns will be extended to cover digital record keeping requirements.• Eg Various religious orders• Digitally excluded groups

MTD - VAT

Common Queries

Digital Records • Invoices can be paper or digital.• Whilst HMRC would like data to be captured as near to real time as possible, businesses will still be

able to compile records quarterly using a book-keeper or other agent.

Free Software• There will be no free software for VAT

Spreadsheets• Businesses can continue to maintain records in

spreadsheets but they must be API enabled (or combined with other software which has the API links with HMRC).

MTD - VAT

Common Queries (cont.)Submissions

• Some software packages have for some time supported the submission of VAT returns online through the Government Gateway. However this is not the same as being MTD compatible. Users submitting VAT returns this way will not be able to continue with this option after April 2019. Instead they will have to use API enabled MTD software.

Combining datasets• Where businesses keep their records on more than one dataset and then combine their VAT totals

prior to submission this will now have to be done digitally.• It is anticipated that there will be a soft landing period of 12 months for to allow businesses time

to update their systems to be fully compliant.• The Farmplan software will allow a dataset to import or export VAT totals to another dataset so

that they can be combined digitally before submission.

Partial Exemption• Where a spreadsheet is used to calculate adjustments such as partial exemptions these can be

posted into the software via a journal and then the revised VAT return submitted to HMRC via API enabled software.

What is Farmplan doing about MTD – VAT?

Farmplan’s MTD compatible software will be able to submit MTD VAT returns to HMRC

• Most of the software changes revolve around registration and the secure two-way communication between the software and HMRC.

• The submission process is similar to the payroll FPS process with a ‘successful submission’ message being received back into the software from HMRC.

• Features:• A wizard to guide the user through the initial setup.• A countdown feature to remind the user when the VAT return is due• A dashboard where you can lookup all the details relating to any VAT submission• The ability to combine VAT totals for more than one dataset

• Beta testing – we are about to commence the Beta testing with HMRC. This starts with straight forward businesses which file quarterly VAT returns. HMRC will select and invite businesses to take part in this.

• After first phase of testing is complete it will be opened up to all our customers.

MTD - Digital Tax Accounts

Requirements

From April 2020 AT THE EARLIEST businesses above the VAT threshold will have to:

Keep accounting records digitally Make quarterly submissions of trading data to HMRC through

MTD functional compatible software Make an end of period submission Provide extra voluntary information Receive information from HMRC

MTD - Digital Tax Accounts

Who will be affected?

• Businesses with a turnover equal to or in excess of the compulsory VAT registration threshold (currently £85,000) will be required to make MTD submissions.• Trading businesses• Property businesses• Incorporated and unincorporated businesses

Who won’t be affected?• Businesses with a turnover under the VAT threshold (currently £85,000) will

not be required to make MTD submissions but will be able to do so voluntarily.• Charities (without trading arms)• Amateur sports clubs• Various religious orders• Digitally excluded groups – no broadband, age, disability

MTD - Digital Tax Accounts

Common QueriesDigital Records

• Invoices can be paper or digital.• Whilst HMRC would like data to be captured as near to real

time as possible, businesses will still be able to compile records quarterly using a book-keeper or other agent.

Free Software• Free software will be available for businesses with the most straight forward affairs.• HMRC is currently working with software developers to define the minimum functionality.• There will be no free software for Agents.

Spreadsheets• Businesses can continue to maintain records in spreadsheets but they must be API enabled (or

combined with other software which has the API links with HMRC).

Submissions• It will not be necessary to submit accounting adjustments (such as valuations) and tax reliefs

(such as Capital Allowances) quarterly. These can continue to be done at the year end by the accountant.

What is Farmplan doing about MTDfb

Farmplan’s MTD compatible software will be able to submit the MTDfbQuarterly returns to HMRC

In order to make the relevant quarterly submissions the software will record more detailed business information.

• The structure of the Business.• Sole Trader• Partnership• Etc

• The type of income the Business receives• Trading• Property

It will also match the existing Heading Codes to the relevant Tax Return Codes.

• There will be a wizard within the software to help the user set up their business appropriately in order to allow for the recording of all this data.

• There will be hints and tips within the software to help the user.

Current SelfAssessment

Tax Return

Asks for details about the different types of income you receive.

Then directs you to the correct returns to be completed.

The MTD setup wizard will ask similar questions.

Quarterly Details

Sole Trader

Once the type of business has been identified our MTD software will link the users current heading codes to the relevant tax return categories.

The MTD setup wizard will guide users through this matching process.

Quarterly Details

Partnership

Note, each type ofBusiness has slightly different tax return categories.

Quarterly Details

Properties

It is also important to identify whether a property is owned by a partnership or an individual, as this leads to the completion of a different return.

Preparing for MTD

It is well worth preparing early for MTD to ensure a smooth and stress free transition

Know your business details• Type of business (Partnership, Limited Company, Trust etc.)• Type of property income (Residential lets, Commercial lets, Furnished holiday

lets etc.)• Ownership of properties• Cash basis or accruals basis for trading and property returns

Tidy up codes• Finish unused codes (heading codes, enterprises, farm

codes, search codes)• Create new codes required (E.g. Holiday let insurance)

Ensure your VAT periods are closed up to date

Watch out for MTD bulletins• Via our messaging centre• Via our website farmplan.co.uk/making-tax-digital-hub• Via email

Top 5 myths surrounding MTD

Myth 1: MTD has been abandoned. Due to the General Election in June last year the MTD legislation was delayed and therefore the timetable for implementing MTD was also delayed. However, HMRC say MTD is definitely going ahead, with HMRCs beta testing of VAT software starting from April 2018.

Myth 2: It will be necessary to keep accounting records on cloud based software.It is only necessary for the accounting software to access the internet to make the MTD submissions. This can be done from a desktop or cloud based system in the same way that payroll submissions can be made.

Myth3: It will be possible to continue doing paper returns.MTD is not optional. Businesses will not be able to continue to file their returns on paper or by using the current portals.

Myth 4: HMRC will provide free software for businesses to use.HMRC has confirmed it will not be providing any software directly and at this stage there are no plans for any free software to be available for MTD for VAT.

Myth 5: It will be possible to meet all MTD obligations by using a simple spreadsheetBusinesses will be able to use spreadsheets for record keeping but they will need to combine them with other MTD enabled software using APIs, to send and receive data to/from HMRC.

Get in touch with Farmplan, learn more about

MTD ready software, join the beta or book your

accounts software demo today

Call 01594 545000

Email sales@farmplan.co.uk

Farmplan.co.uk/making-tax-digital-hub