P&Co’s Guide to Making Tax Digital

What is Making Tax Digital (“MTD”)?

HMRC’s ambition is to become digitally advanced and MTD is HMRC’s plan to transform the tax system through digitisation. It aims to be more effective, efficient and simpler for taxpayers. MTD is intended to improve the accuracy of business records and minimise errors.

The first stage of MTD will focus on VAT. It imposes new requirements for digital record keeping on VAT registered businesses from April 2019.

What do you need to know?

From April 2019 all VAT registered business with taxable turnover above the VAT threshold (currently £85,000) will need to:

  • Keep digital records

    Keep accounting records digitally in a software product or spreadsheet. Paper records will not meet the legal requirements in the new legislation.

  • Submit to HMRC through compatible software or API

    VAT returns to HMRC must be submitted using compatible software (through HMRC’s API). HMRC’S online VAT return will remain available only to businesses that are voluntarily registered for VAT.

  • Everything else remains the same

    There are no underlying changes to the VAT rules, the amount of information required to be submitted to HMRC, or the current filing and payment deadlines for VAT.

When does it start?

From the start of your first VAT return period beginning on or after 1 April 2019. Annual accounting and special VAT accounting periods will continue and the requirements will apply from the start of the first VAT return period beginning on or after 1 April 2019.

What does digital record keeping mean?

Businesses can continue to keep documents in paper form if you prefer but each individual transaction (not summaries) will need to be recorded and stored digitally. HMRC would like these records to kept as upto date as possible, but will accept creating digital records at quarterly intervals.

What records need to be kept digitally?

Records of all supplies made and supplies received.

  • For supplies made

    For supplies made The time of supply, the value of the supply and the rate of VAT charged. Together this will be needed to make up the record of outputs value for the period split between standard rate, reduced rate, zero rate, exempt and outside of scope outputs.

  • For supplies received

    The time of supply, the value of supply including any VAT that is not claimable and the amount of input tax to be claimed. Together these will make up the VAT account, and this is what needs to be used by the software to complete the VAT return.

  • Additional information

    Records should also include information about your business, including business name and principle business address, as well as your VAT registration number and details of any VAT accounting schemes you use.

What if records are maintained in different places?

There must be digital links if records are maintained in more than one program or product. Information cannot be transferred manually between products. Digital links include:


Retailers, including shops, restaurants, and any other businesses that use tills and POS systems, this is likely to be for you. Retailers will be able to record daily gross takings (not weekly, monthly, or quarterly) rather than each individual transaction. This means that there does not need to be a digital link between tills and the accounting records; recording the daily totals in the digital accounting records will meet the requirement.

Flat rate schemes. The flat rate scheme will continue and digital records of supplies received will not be required.

An exemption also exists for the digitally excluded and mirrors the current exemptions from online filing for VAT.

MTD for VAT..are you ready?

If you run a VAT registered business with a taxable turnover above the VAT registration threshold you will need to keep digital VAT business records and send returns using MTD compatible software for VAT periods starting on or after 1 April 2019. You will need to keep business records digitally, using spreadsheets, MTD compatible software and/or bridging software that connects with HMRC.

MTD for Income Tax… coming soon

Businesses and landlords who join MTD for Income Tax will need to send quarterly summaries of their income and expenses to HMRC using MTD-compatible software.

This is expected to be mandated not before 2020.

HMRC has also launched a voluntary MTD pilot for Income Tax in spring 2018 and you may want to consider joining that so that you can start to get ready for MTD earlier.

P&Co are trained and well positioned to help all our clients be ready for Making Tax Digital.

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