In a recent breakthrough decision, the HMRC has decided to make the taxes go digital. It has already been underway with VAT, but the recent changes are expected to transform the way taxes are done across all business spectrum throughout the country.
The plan of Making Tax Digital is formulated to make the taxation process effortless, seamless and smooth for both the individuals and businesses. With an aim to assist the taxpayers get their taxes right and stay on the top of their games, HMRC wants to make a digitally advanced tax administration.
Making Tax Digital initiative will make some fundamental changes in the way the tax administration, so that it becomes:
- More Effective, Smooth and Seamless
- More Efficient
- Effortless interface for taxpayers to ensure the taxes are done right
From April 2022, all the VAT registered businesses are required to follow the MTD or Making Tax Digital rule for the VAT returns. So, it’s advisable to keep electronic records of the business transactions to ensure going digital becomes quicker and easier.
Expected Changes with Making Tax Digital for VAT
If you have a VAT registered business with an annual turnover of at least £ 85,000, then you should be using a MTD-complaint software. On the other hand, if you’re VAT registered business has turnover less than £ 85,000 it’s essential to make your transactions MTD-compliant from April 2022. To make your business aligned with the MTD, investing in software becomes indispensable.
Expected Changes MTD Will Bring in Tax Administration
Under MTD, it’s important to maintain all your VAT records in a proper digital format. You can either rope in a professional accounting outsourcing expert who can submit the VAT returns digitally, through MTD-compliant software like Xero, QuickBooks, SAGE, etc. The aim of HMRC is to reduce the instances of human errors. MTD means less manual data and hence decrease in the human errors.
Things That Remains the Same under the MTD
The VAT return due date remains the same. For quarterly returns, the due date is seven days after the end of the month, following the end of VAT quarter. The VAT due is payable via electronic means like BACS, direct debit or through bank. Businesses following the VAT annual accounting scheme are required to pay the VAT as standing order.
Digital Records That Should be Maintained Under MTD
As a business, you are responsible for keeping and maintaining business records in a digital format. Records shall be kept at least for 6 years (or 10 years if you used the VAT MOSS service). This includes making a record of the following transactions:
- Sales Records and VAT charged
- Purchase Amount of VAT to Reclaim
- Sales Record of Excluding the VAT
- Purchases and Net Value of VAT
- Sales Tax Point
- Time and Tax Point of Purchases
Besides, HMRC requires you to record the following details in digital format to determine where the VAT return has come from:
- Business Name
- Business Address
- Registration number of VAT
- VAT accounting schemes, if you use any
Details required for signing up for MTD
- your business email address
- a Government Gateway user ID and password – if you do not have a user ID, you can create one when you use the service
- your VAT registration number and latest VAT return
If you have any queries about MTD, talk to your accountant or our experts from Accrels. We offer you a comprehensive perspective about MTD and how you can make it more streamlined.