Making Tax Digital: Important changes for UK businesses

The essentials: What is MTD?

The MTD system is intended to create an accessible and transparent tax system that places less of a burden on the taxpayer. The essential elements of MTD are:

• No more paper records: It will become mandatory to use software to keep accounting records. Paper accounting records will no longer meet the requirements of tax law.
• Quarterly reporting: Tax payers will be required to submit updates to HMRC each quarter, directly via accounting software.

See also: What Making Tax Digital means for your small business

The changes

The good news for anyone who has been dragging their feet in getting ready for MTD is that the government announced that only businesses with a turnover above the VAT threshold (currently £85,000) will have to keep digital records and only for VAT purposes. These businesses will only need to do so from 2019.

Making Tax Digital will be available on a voluntary basis for the smallest businesses, and for other taxes. This means that businesses and landlords with a turnover below the VAT threshold will be able to choose when to move to the new digital system.

As VAT already requires quarterly returns, no business will need to provide information to HMRC more regularly during this initial phase than they do now.

Do note: Those who are not able to engage digitally for religious reasons or due to age, disability or location (due to no availability of broadband) will also be exempt.

What to do now?

What you need to do now depends on the size and structure of your business and how your records are currently kept. You may need to implement or upgrade your accounting software and your processes will most likely need to change.

You will need to organise your quarterly submissions to HMRC or provide your accountant with the relevant information for them to do the reporting on your behalf. In times like this it really does pay to have a qualified accounting firm in your corner.