MTD – What even is it???
I realised there was a bit of a problem when my friend admitted he didn’t know what MTD was (he’s an ACCOUNTANT). If he hadn’t got the memo, there wasn’t much hope for other small business owners.
I also asked a group of savvy business women. Within 2 hours about 70 people had replied and only about 20% knew what it stood for.
After the GDPR panic of last spring, wouldn’t it be great if this time we prepared small business owners for the changes ahead? Here are the basics.
What does MTD stand for?
MTD stands for Making Tax Digital.
The goal is that your figures will be collected in real time so that tax payers and therefore the Government will not have to wait to find out how much tax they must pay.
To quote the government,
‘HMRC’s ambition is to become one of the most digitally advanced administrations in the world’
Why are they doing MTD now… haven’t we got enough to do?
The government are trying to reduce the ‘Tax gap’. This is the difference between what the government expect to get in taxes and what they actually get. For 2014/15 the Exchequer estimate that £8 billion was lost due to errors by the taxpayer.
HMRC believe that by harnessing the digital technology that many of us already use, such as online banking and internet shopping, it will be easier for businesses to reduce the errors and get their taxes right.
How will MTD affect me?
From 1 April 2019 VAT registered businesses in MTD will be required to:
- Maintain their account records digitally in a software product or spreadsheet, and
- Submit their VAT returns to HMRC using functional compatible software
Paper records will no longer meet legal requirements for these businesses and they will no longer be able to use the free HMRC software to enter their VAT return.
Will MTD affect everyone?
No, MTD will not affect everyone straight away. Due to a few other things going on (Brexit!), HMRC have agreed to stagger it’s introduction.
The first stage will be for VAT registered businesses with turnover over £85,000. If you are VAT registered but your turnover is below £85,000 for the 12 months leading up to 5th April 2019, you can elect into MTD.
Are there any exemptions from MTD?
- Religious – Businesses run entirely by members of a religious society whose beliefs are incompatible with requirements of MTD.
- Insolvency – Businesses that are subject to an insolvency procedure.
- Location – The location of the business is digitally excluded. This means it is not possible to access the internet. (Not because the business has chosen not to get broadband).
There is no exemption for Charities at present.
When do we need to do something about it?
If your business is VAT registered and has sales over £85,000, then you will need to comply from the first VAT quarter following 1 April 2019.
When you need to start preparing depends on who does your bookkeeping and how they do it. If you are using an MTD compatible software already then you should be ok. HMRC have provided a list of software that will work with MTD.
Most of the well known software providers will support MTD. However, you will need to make sure that you are using the most up to date versions. In the past small business owners have relied on old versions of software like SAGE long after they were supported by the supplier. This will not be feasible under the new regime, hence the big movement to cloud based software such as XERO, FreeAgent and QuickBooks online.
Some software providers such as VT transactions have already declared that their software will not be MTD compatible.
If at present you are using an excel spreadsheet to record transactions, you may still be able to do so but you will have to use bridging software (or find an accountant that offers this service) to connect your data to HMRC’S portal.
Can you help me with MTD?
Yes, I’ve been working with XERO and other apps for the last 4 years. You can hear a little about how much I love it here . If you’d like to have a deeper nose around, I can set you up with a free trial of XERO or have a chat about whether it’s suitable for your business. If this interests you, just contact me here.