From April 2018, VAT-registered business with a taxable turnover in excess of £85,000 will no longer be able to keep manual records due to the HMRC’s new Making Tax Digital (MTD) regime.
What Does This Really Mean To You
- You will need to use accounting software that integrates with HMRC’s system.
- Dividends will need to be digitally reported to HMRC each quarter.
- HMRC will have a full visibility of overdrawn director’s account and might seek to collect corporation tax at 32.5%.
- HMRC will have the ability to obtain some information directly from other sources such as banks and employers.
Here are the new Making Tax Digital (MTD) regime’s requirements:
Compatibility
The new regime requires businesses to maintain relevant information such as sales and purchases in an electronic format, using ‘functional compatible software’. This compatible software should support the MTD obligations of keeping digital record and exchanging data digitally with HMRC through MTD service.
Digital records can be kept in a range of compatible digital formats. They do not have to be held in one software.
Digital Links
Once data has been entered into software used to keep and maintain digital records, any further transfer or modification of the data should be done using digital links.
HMRC accepts the following as digital links:
- Sending spreadsheets containing digital records to your tax agent
- Transferring a set of digital records onto a en drive or memory stick and physically giving this to your tax agent
- XML, CSV import and export
- API transfer
The transfer of information by the use of copy and paste or cut and paste does not meet the requirement for a digital link. However, HMRC have confirmed that they will give businesses until 31 March 2020 to make sure there are digital links between software products. Therefore, copy and paste method will be an acceptable way to transfer information before this date.
Functionality
The functionality of the compatible software must include the following:
- keeping records in digital form
- preserving digital records
- creating a VAT return from the digital records held in functional compatible software and providing HMRC with this information digitally
- providing HMRC with VAT data on voluntary basis
- receiving information from HMRC via the API platform in relation to relevant entity’s compliance with obligations under the regulations
Conclusion
The great thing about keeping records in digital form is that it allows you to view your financial position in real time which help increase efficiency and minimise errors. However, this also means complete transparency to HMRC wherein they have full visibility of your financial position.