Guest Blog - Making Tax Digital

​This week we are delighted to have a guest post written by Chartered Accountants Clemence Hoar Cummings. Read on to find out why businesses should be thinking about getting rid of their paper accounting systems and putting everything online...
​

---

​​Clemence Hoar Cummings will not accept liability for any actions or failure to act based on the information provided below. We consider that the advice contained below is generic and that there is no substitute for advice tailored to the needs and circumstances of the individuals or organisations to which the Making Tax Digital rules apply. 
​

Making Tax Digital – The Essentials

•  Applies to all VAT Registered Businesses and Organisations with income above VAT 

           Threshold of £85,000
        - Includes Companies, LLPs, Partnerships, Sole Traders, Trusts, Non UK businesses
           who are registered for UK VAT and charities

• All VAT periods starting on or after 1 April 2019

However, for Trusts, Not for Profit organisations that are not companies, VAT Divisions and Groups, Local Authorities, Traders based overseas, Annual Accounting Scheme users, the proposed start date is 1 October 2019
 
What is my Taxable Turnover?

• Include Standard Rate, Reduced Rate and Zero-rate Supplies (this includes exports to EU countries)
• Exclude “outside the scope” (e.g. exports outside of EU) and Exempt Supplies
• Relevant period is last 12 months on a rolling basis as with compulsory registration
• Voluntarily Registered businesses who have not opted in to MTD for VAT need to continue to monitor their turnover

 
Points to Consider on Requirement to Register

• Once a business is required to comply with MTD the obligations continue even if turnover falls below the threshold
• Newly incorporated businesses wanting to register quickly or those newly registering having hit the threshold should consider how they will comply at an early stage as there is limited time to comply.

 
What do we need to do to comply?

• You will need to maintain Digital Accounting Records
• Paper records will cease to meet legal requirements
• Required to use a “functionable, compatible software product” to submit returns to HMRC. Which means:-
• Software will use HMRC’s API (Application Program Interfaces) platform to submit information to HMRC
• The Current HMRC online tax return service will be withdrawn for those inside scope of MTD

 
Exemptions

• The digitally excluded – age/disability/ location or religious reasons
• If you are not currently exempt from online filing then unlikely to be exempt in the future.
• Businesses in insolvency procedures:-

          Bankruptcy or winding up
          Administrative Receivership
          Estate becomes vested in any other person as that person’s trustee under a trust deed
 
Software

• Unlikely that there will be a free product from HMRC
• Providers include Xero, SAGE (latest versions only), Quickbooks and a number of others
• Digital records can be in more than one program or software product.
• Where records maintained in more than one program then there must be digital links between them – no manual transfers of information.

 
Can Spreadsheets be Used?

• Yes - either to record individual transactions, or as part of a suite
• BUT – the spreadsheet will need to be API enabled or used in combination with MTD compatible software, so that data can be sent to and received from HMRC systems
• An existing spreadsheet alone is not a free way to comply with the MTD for VAT requirements

 
What is a Digital Link?

• Emailing a spreadsheet containing records to a tax agent so that they can import data into their software to carry out a calculation (e.g. for partial exemption)
• Transfer onto a portable device to give to an agent to import into their software
• XML, CSV import and export and download and upload of files
• API Transfers
• Linked cells within or between spreadsheets (not copy and paste)

 
What is Functional Compatability?

• Keep records in a digital form
• Preserve Records in digital form
• Create a VAT return from those digital records
• Provide HMRC with VAT returns and voluntary info. Using the API platform
• Receive information from HMRC using the API platform. (requirements to file and confirmation of successful filing and “nudges”)

 
Can I Adopt early?

• Any business with MTD for VAT compliant software can join the MTD for VAT Pilot. Unless

              - trade with or have traded with EU
              - a partnership
              - part of a VAT group
              - based overseas
              - Trust of NfP that is a company
              - Submit monthly or annual returns
              - Use flat rate scheme
              - A new business
 
Digital Record Keeping Requirements

• Not the requirement to scan and store all invoices and receipts digitally  - yet
• Each individual transaction (not summaries) will need to be recorded and stored digitally
• Preference is for real time data but can do it quarterly, using a bookkeeper or agent if required
• Need to record name of business/organisation, address, VAT reg no, details of any VAT accounting schemes

 
Data to be kept – Supplies Made

• Time and value and rate of VAT charged
  
• (if multiple supplies subject to same rate of VAT at the same time these do not have to be recorded separately)
• (if supplies with different rates at same time then separate digital records are required)
• Need to be able to show record of outputs for the period split between standard, reduced, zero rate, exempt and outside of scope. (relaxation for meal deals and other mixed rate supplies at one price)

 
Data to be kept – Supplies Received

• Time, value of supply incl. any VAT not claimable and input tax to be claimed.
• If more than one supply of an invoice, record totals

  
The VAT Accounts – Outputs

• This is the audit trail between business records and the VAT return. Information must be kept digitally
• Outputs

- amount owed on sales
              - amount owed on acquisitions from other EU member states
              - Tax required to pay on behalf of suppliers under reverse charge procedure
              - tax to be paid following a correction
 
 The VAT Accounts – Inputs

• Input tax entitled to claim from business purchases
• Input tax allowable on acquisitions from other EU member states
• Input tax entitled to be claimed following a correction or error adjustment

 
      Scale charge adjustments, partial exemption calculations, are not included in the list of  
      digital records
     Reverse Charge transactions need care
 
Schemes

• Retail Schemes - Retailers can just record daily takings so no need for a link between tills and accounting records – but be careful where supplies have different VAT rates
• Flat Rate Schemes – the scheme continues and digital records of supplies not needed unless capital goods >£2,000
• Margin Schemes – Additional info needed and the calculation of marginal VAT charged do not need to be kept in digital form (but records are needed)

 
Is that it for MTD?

• Not Quite
• MTD for Income Tax
• MTD for Corporation Tax
• MTD for individuals

         May be from April 2020
        The principles will be the same – requirement to maintain digital accounting records.
 
Who will that affect?

• Individuals with Property Income
• Companies that are not VAT registered
• Businesses and Partnerships that are not VAT registered.

 
David Belbin is Managing Director of Clemence Hoar Cummings Chartered Accountants who have been providing accountancy advice and services to organisations and individuals in Havering since 1925. He can be contacted on 01708 333 300 or by email david.belbin@chc.uk.com