The Making Tax Digital (MTD) regulations come into force for periods starting from 1 April 2019 for most businesses which are required to be VAT registered because their annual turnover is £85,000 or more.
They must keep their VAT records in a digital format and send VAT returns directly from MTD-compliant software to HMRC. If you use accounting software which automatically sends your VAT return to HMRC, you are 90% ready for the MTD regime. Ask your software provider when you will receive the upgraded MTD-compatible software. Once that upgrade is installed and tested you can register with HMRC to submit returns under MTD, or we can do that for you.
Where you use a spreadsheet or other accounting software to compile the VAT figures, and manually type them into HMRC’s online VAT form, you are halfway to MTD compliance. You need to install some ‘bridging software’ to pull numbers from your spreadsheet and push them through an application program interface (API) into HMRC’s system. Most accounting software packages will allow the data to be downloaded as a CVS file, which can be read by the bridging software just like a spreadsheet.
Businesses that operate an entirely paper-based accounting system have a bigger mountain to climb. Some form of accounting software or spreadsheet will be required, but this doesn’t have to be a cloud-based accounting package.
When choosing accounting software, be aware of what you need it to do. Some accounting packages won’t cope with the VAT adjustments needed for partial exemption or margin schemes, or even with accounts that run to the tax year end: 5 April.
The purpose of MTD is to encourage businesses to use an entirely digital accounting system, where the data from each transaction is automatically summarised and, with any necessary adjustments, flows into the VAT return.
In between there should be no human retyping of figures or cutting and pasting of data between spreadsheets.
HMRC understands that it will take some time to implement a fully digital process, so it is allowing businesses an extra year to make all the links between spreadsheets and software fully digital.