Making Tax Digital (MTD) is the biggest change in our tax system since Self-Assessment was introduced. From April 2020, all businesses and landlords with annual turnover over £10,000 will have to make online quarterly submissions of key financial information to HMRC. But, businesses with turnover over £85,000 (over a rolling 12 month period) will be affected from April 2019.
VAT registered businesses with annual (Standard/Zero-rated) turnover over £85,000 will have to submit their VAT returns using HMRC’s new MTD system from the first VAT period that begins on or after 1 April 2019. A business with (Standard/Zero-rated) turnover under £85,000 will only have to use the MTD system from the start of the next VAT period after its rolling 12 month turnover figure has exceeded £85,000. The threshold of £85,000 therefore needs to be checked every month – even for businesses which have registered for VAT on a voluntary basis.
Once businesses are required to make submissions to the MTD system, they must ensure that their records are in digital form and are filed with HMRC using compatible software. HMRC will not provide any compatible software. Instead, businesses may need to purchase the necessary cloud accounting software (of which there are many products) in order to make the submissions.
However, many small businesses keep their bookkeeping in spreadsheet form. As an alternative to buying new cloud accounting software, there will be ‘bridging’ software available to purchase that converts spreadsheet records into a format suitable to submit to the MTD system.
Whilst it would not be a big surprise if the implementation was delayed by HMRC, as things stand, businesses with turnover over, or approaching, £85,000, need to be ready and prepared to make VAT returns using the MTD system in early 2019.