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What do you need to do to get to grips with Making Tax Digital?

Posted on 16 Nov 2018 - Making Tax Digital

MTD requires individuals, organisations and businesses to keep and maintain records in a digital form.

To comply with requirements, the software used must be able to:

  • Keep records in a digital form
  • Preserve digital records in a digital form
  • Create a VAT return from the digital records •
  • Provide HMRC with additional VAT data on a voluntary basis
  • Send and receive information from HMRC via the API (Application Programming Interface) platform

If you keep paper records

If you currently keep your financial records using only paper records, then you will have to look at using a digital alternative or look to use an external provider that can keep your records and ensure you comply with MTD.

If you use spreadsheets

HMRC will accept spreadsheets as a form of digital software, though use of accounting software is preferable. Certainly such software is increasingly the norm for those looking for a full bookkeeping solution and one that enables VAT returns to be filed with HMRC.

As more bridging software is becoming available the concerns are lessening around the ability of spreadsheets to file, upload or provide a true digital interface for reporting and compliance between the VAT registered entity and
HMRC.

It remains that the use of spreadsheets for VAT are vital for some complex businesses, for which off the shelf cloud accounting software is not workable, lacking the functionality or flexibility required.

If spreadsheets are used they will need to be combined with third party commercial software, using the API platform (Application Programming Interface), to ensure a seamless flow of data from the business to HMRC
and vice versa.

Bridging Software and the use of an API

For those still wanting to use spreadsheets, there will still be a requirement to use some form of bridging software, or API platform (Application Programming Interface). This being software that will allow for the transfer, recapture or modification of data using digital links between the individual or organisation and HMRC. Copying, pasting or manually creating a VAT return is not compliant with MTD.

Bridging software is a digital tool that enables data from the VAT return from within a spreadsheet to be transfered to HMRC’s Government Gateway.

Time to adopt

For the first 12 months following the introduction of MTD in April 2019, businesses using non-API enabled programs, or multiple programs, will not require digital links between them. Those businesses that are using bridging software to submit their returns to HMRC will need to ensure the transfer of data is to be made digitally.

If you use accounting software

If you currently use accounting software, you will need to ensure such software is compliant. As a simple rule, your software needs to be able to generate and file VAT returns directly to HMRC. Users of Xero and QuickBooks Online will be automatically compliant. Sage 50 users may need to upgrade.

You will need to be able to generate the return from your software. There can be no more manual hand written adjustments to returns. If you currently make manual adjustments then you may need guidance on how to enter these in your software.

You will need to ensure you have addressed the points outlined by April 2019, when MTD goes live and we would recommend you consult with your software provider.

When MTD goes live for income tax and corporation tax, currently expected in 2020 at the earliest, your software will need to be updated to include these additional MTD filing functions.

If you use specialist or bespoke accounting software

If you currently use industry specialist or other bespoke software then you will need to ensure it is compliant and meets the requirements for Making Tax Digital.

We would strongly recommend you consult with your software provider or developer in good time to ensure you are ready for MTD going live in April 2019.

If you use an external bookkeeper to keep your records

It is your responsibility to make sure you are compliant.

Therefore the onus is on you to ensure that any third party bookkeeper satisfies and fulfils the requirements outlined.

If we do your bookkeeping/file your VAT returns

We will make sure you are compliant.

We may speak to you about making changes to the way we keep your books and records internally, such as using bank feeds or document scanning to make the most of new technology. Rest assured, if we do your bookkeeping,
we will ensure you are MTD ready.

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