Making tax digital

Greater Birmingham Chambers of Commerce

What is Making Tax digital?

From April 2019, UK businesses will be required to maintain digital records for VAT and submit their returns electronically using software that is compatible with HMRC systems. These changes form a part of the HMRC Making Tax Digital (MTD) initiative which will eventually encompass corporation tax and income tax as well, but not until April 2020 at the earliest. This new system will only be compulsory for VAT registered businesses with a taxable turnover above the current VAT threshold of £85,000. It will be optional for business with a turnover below the threshold.

For a select few businesses with more complex requirements, HMRC have decided to defer the deadline for VAT sign up until 1st October 2019 to allow them to test the service. Those eligible for this include public sector entities who are required to provide additional information on their VAT return (e.g. government departments and NHS Trusts).

Why is it being brought in?

HMRC has said that by switching to digital, the tax administration system will become a more efficient process due to the elimination of many existing paper-based processes. The switch to digital is also expected to reduce avoidable errors, which are currently costing the treasury upwards of £9billion a year. By having to input their records manually, businesses are often prone to making accidental errors, whereas digital tax records will be more accurate according to HMRC as they are recorded in real time which will reduce the risk of mistakes. The purpose of the new system is to simplify the process for businesses by ending self-assessment and bringing together all of their tax details into one place. These changes are designed to make it easier for businesses to forward plan and manage cash flow.

How can your business get ready for Making Tax Digital?

In order to be ready to sign up for Making Tax Digital for VAT, your business will need to have access to software that will allow you to keep digital records. If you already have software for digital record keeping then it is important that you check with your provider as to whether they intend to make the software compatible with MTD. If your current software is no longer compliant, you may wish to consider using bridging software which can extract information in the correct format from other applications electronically by making a digital transfer to HMRC. This is defined as a digital link. HMRC have said that they will allow a period of time called a soft-landing period for businesses to put in place digital links between all part of their functionable compatible software. This period will last a year from when the MTD rules first apply to you, so April 2020 for the majority of businesses. For a list of software packages that are eligible with MTD for VAT click here.

After you have acquired compatible software, you will need to sign up for MTD for VAT. In order to do this, you will need your businesses VAT number and your Government user ID and password. It is important to note that if your business pays VAT by Direct Debit, then you cannot sign up in the 15 working days leading up to, or the five working days after sending a VAT return. Click here to sign up.

What is the GBCC position?

The GBCC supports the British Chambers of Commerce position in calling for a delay to the rollout of Maxing Tax Digital. With businesses already having to contend with Brexit related uncertainty and the disruption that inevitably brings with it, many do not have the capacity, finances or time to make the necessary preparations. It also brings into question whether HMRC will have the necessary bandwidth and resources to support and guide businesses through these momentous changes as well as the Brexit process. With just one month to go, the results from the latest British Chambers of Commerce Business Taxation survey suggest that a significant proportion of businesses are still not aware of the initiative with nearly one in five (19%) stating that they had either never heard of MTD, or they only knew it by name. 

You can find out more information on Making Tax Digital initiative through the government website – access here.

Daniel Clarke
Policy & Research Advisor