Making Tax Digital (MTD): Starts on 1st April 2019

It was inevitable the HMRC would start to use Internet technology to collect in the information they need from tax payers in order to calculate the tax that should be paid.

Their first MTD step begins this April when all UK VAT registered businesses, with annual turnovers of more than £85,000 must submit their VAT return form information (i.e. just the figures one records in the boxes under the existing online reporting system) under a new digital reporting system.

As far as the this initial phase is concerned, all of our existing clients will hardly notice the change in reporting requirements.

The change only requires some timely administrative work involving signing-up online to the new HMRC client and agents MTD accounts to receive the new way of reporting VAT Return Form information for future accounting period. As we have no clients reporting VAT on a monthly basis, the first MTD-relevant period to affect our clients will be for the 3 months ending 30th June 2019. All is in hand, and we do not anticipate any transitional problem to arise as we move forward in this initial MTD phase.

Should I start using one of the many advertised MTD-compliant accounting software solutions?

Firstly, none of our existing clients should feel compelled to adopt a new accounting software product just because of the introduction of MTD. The way you will report your VAT from 1st April 2019 is already covered.

On the other hand, there are many advantages to be gained by using in-house software and we we will support you if that is the way you would like to go. Read more.

The next phase of MTD will become a little more interesting

It will not be long before the HMRC will require VAT registered businesses to submit the details of the individual transactional data that sits behind the boxes recorded in the VAT Return Form. This will mean everyone's sales and purchase invoices, together with bank receipts and payments will be laid bare for them to review and audit at will.

We anticipate the HMRC will apply automated analytical-review software to alert their trained investigation technicians to the presence of suspect items in the detailed VAT accounting records submitted. It would only take a few clicks of the mouse to flag-up the transactions the HMRC are interested in, and fire off an email to the tax-payer requesting written clarification and copies of the supporting paperwork within 30 days.

When MAAP first opened its doors for business, a VAT-registered client would expect an on-site HMRC audit visit to inspect their accounting records every 3 to 5 years. In the last twenty years we can count the number of VAT audits carried out on our clients on one hand.

When MTD evolves to the next stage, it will allow the HMRC to significantly increase the number of audits they carry out each year, and more effectively target the non-compliant businesses that deserve their attention.

We anticipate we shall not be alone in spending more time on educating our clients on the reasons why they need to tidy-up what they attempt to put through the books of their business. Up to now, firms of accountants have policed the records and reversed out non-business transactions. In a few years' time, it will be the HMRC reviewing your transactional history and they won't take it lightly if they discover you have tried to slip thorough the odd private expenditure through the business … or you regularly engage and pay for the services of a self-employed individual who is self-evidently a disguised employee. Such mistakes seem to leap off the page and compete for the attention to a trained eye … and once they find one they will looking harder for other indiscretions.

As one should start as one means to go on, it would be wise to remember the only expenditure you can pass through the books are ones which are wholly and necessary for the business if you are a sole trader or partnership. Expenditure must be wholly, necessary and exclusively for the business for corporate entities.

Call us on 01202 482121 if you are looking for some more information of how Making Tax Digital will affect you.

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MAAP Accountants
Sigma House, 44 Willow Way
Christchurch, Dorset, BH23 1LA
Tel: 01202 482121