Making Tax Digital (MTD) is one of HMRC’s key strategic priorities, with the aim of transforming and modernising how tax is reported and managed. The first stage of MTD is to bring VAT into the digital domain.
From April 2019, all businesses with a turnover above the VAT threshold (currently £85,000) will be required to file their VAT returns digitally. VAT has been online since 2010 and, like over 98% of VAT registered businesses, your organisation may already file returns electronically. However, MTD will involve significant changes to the existing process.
Making Tax Digital involves two things:
Maintaining digital records in digitally linked functional compatible software that can create a VAT return from the digital records and which can connect to HMRC systems via an Application Programming Interface (API).
Submitting the VAT returns from that functional compatible software rather than, as present, via the online portal.
We anticipate that what is being asked of businesses under MTD will evolve over time in line with wider trends we are seeing in Europe and across the world, with corporation tax and income tax expected in 2020 at the earliest. All businesses will now need to consider how they collect, store and process data from a tax perspective to prepare for these potential developments – starting with VAT, where the clock is already ticking.