What Is Making Tax Digital (MTD)? – All You Need To Know

2019 is going to be a big year for the British tax system. Finally, it’s getting a digital makeover. This has been a long time coming, but plenty of people are still in the dark about Making Tax Digital (MTD) and what it really means for them.

There’s much to look forward to, and you should have all the right details to make your transition to MTD as smooth as possible. Today, we’re clearing up any doubts. As providers of MTD software, it’s our duty to spread the word.

The basics

Making Tax Digital was first proposed by the government in 2015. It is set to replace paper records forever, allowing HMRC to have a more accurate sense of who owes what amount of tax throughout the year. MTD was devised to:

• Bring tax submissions and records online, with personal accounts for non-PAYE earners.
• Give updates on what is owed every three months, instead of leaving it to a single, annual tax return submission.
• Retain data for taxpayers and bring down the cost for mistaken submissions which stands at billions of pounds.

Such records will be kept for at least six years at a time, with MTD software that can capably send and store the right information. In short, HMRC wants to give taxpayers more certainty, security and ease of use.

What’s the timeline?

Currently, the timeline looks like this:

• From April 2019, MTD will be applicable for VAT returns only. Any company over the 2018/19 VAT threshold of £85,000 must comply. Other businesses can voluntarily file online if they wish to.
• The 2020/21 year marks the beginning of MTD for Corporation and Income Tax.
• Any business below the VAT turnover limit still does not have to comply with MTD. This will likely continue past 2021, although they’ll be missing out on the key benefits that digital submission provides.

Are there any penalties for non-compliance?

Several penalties lie in wait for those who avoid MTD when they’re not allowed to. HMRC has promised a ‘soft landing period’ for businesses that must submit their VAT in 2019/20. If you’re late, but pay within 12 months, then no action will be taken. From 2020/21, the rules will be stricter. 50% interest will be added to the payment after 15 days. Once 30 days have passed, HMRC will demand 100% interest on the bill, plus extra charges.

Furthermore, a general regulatory penalty applies if you don’t follow the rules around collection. You’ll pay £5 a day providing you haven’t had a VAT issue for the last two years. That rises to £10 for a single, past non-compliance investigation, and £15 for any more. The penalty continues for up to 100 days.

Failure to keep proper records will land a maximum £500 penalty. Lastly, refusing to submit the VAT return via a digital channel carries a fee up to £400. There’s more information here if you need it.

VAT payers can also get penalty points. One point is due for a missed VAT return. If you have four points, then you’ll be fined. The same goes for monthly VAT returns (if chosen over quarterly submissions). MTD penalties will work in a similar way for other taxes when they’re introduced in 2020/21.

Regardless of hitting the VAT deadline, digital systems have to be in place by 6^th April 2019 for those who aren’t exempt.

MTD-compliant software

The only way to ensure that your tax behaviour is up to speed with MTD – and stay confident in your submissions – is to use MTD software. Many current software models aren’t up to the task. They don’t have HMRC’s seal of approval, or the ability to send information on VAT, Income Tax, Capital Gains Tax and the like in one easy-to-use platform.

That’s why it’s worth looking at Liquid’s MTD VAT Filer. It’s HMRC-compatible; all of your data will be added to the system and retained as it should be. Submissions are confirmed, and it can link to your current accounting software. Register today, or speak to us for more advice.