From today, the government’s major Making Tax Digital programme becomes law for over one million VAT registered businesses earning over £85,000.
The new rules, first announced in 2015, will mean most businesses above the VAT threshold will need to keep their records digitally and submit their VAT return using MTD-compatible software for VAT periods starting on or after 1 April.
MTD will make it easier for businesses to get their tax right first time. HM Revenue and Customs (HMRC) has been urging businesses to get ready and has already written to every business affected with information on what they need to do.
Nearly 100,000 businesses have already signed up to the new service. Over 4,000 businesses are now signing up to MTD every day to experience a more integrated approach to business and tax.
HMRC knows businesses will require time to become familiar with the new requirements. During the first year of VAT mandation, HMRC will take a light touch approach to penalties by not issuing filing or record keeping penalties where businesses are doing their best to comply with MTD.
Mel Stride MP, financial secretary to the Treasury said, “Delivering Making Tax Digital for VAT is the first step toward our ambition to create one of the most digitally advanced tax authorities in the world.
“The rules that come in from today will give businesses more control over their finances, allowing them to spend their time focusing on innovation, growth and the creation of jobs.”
Theresa Middleton, director of the Making Tax Digital for Business Programme said, “Tens of thousands of businesses joined our pilot over the last 6 months and have helped us to test and improve the live service ensuring we have the right support in place to help people transition.
“Now is the time for those businesses affected by MTD who haven’t done so already to begin preparing to switchover and start experiencing the benefits MTD has to offer. You don’t necessarily need to sign-up from day one, but you do need to make sure you’re keeping your records digitally for your next VAT period which starts on or after 1 April”
Emma Jones, founder of small business support network Enterprise Nation said, “Encouraging small firms to adopt more digital functionality offers real benefits. For example, having accurate and timely financial information to hand helps companies make better, more informed decisions and using digital tools more broadly, including time management, helps businesses increase productivity. In the longer term we feel Making Tax Digital and the digitisation of tax records will present significant advantages to business.”
What do businesses need to do now?
If you have not prepared, do not panic. April 1st is not a cliff edge for sign-ups – the first returns under the new system for the majority of businesses, who file VAT quarterly, won’t be due until August at the earliest.
Accountants or other tax representatives will already be aware of MTD and will advise businesses how and when they need to make changes to be ready for the new service.
Those already using software will simply need to ensure it’s MTD-compatible then sign up to the new service and authorise their software for MTD.