If you’re a regular to the Intouch blog, you might have read our recent article on what the Budget means for contractors. One topic we didn’t tackle in depth was the introduction of the government’s Making Tax Digital (MTD) programme from April 2019, which is going to affect VAT registered contractors with a taxable turnover above the threshold.
As the government websites states, the MTD initiative forms a key part of its plans to ‘make it easier for individuals and businesses to get their tax right and keep on top of their affairs.’ Think you’ll be affected by the change? If so, here’s some information you might find useful:
Why the change?
Along with simplifying processes for individuals and businesses, the government wants HMRC to be one of the world’s most advanced tax administrations. MTD will lead to fundamental changes in our tax system, with the aim of reducing errors and making it more effective and efficient.
Who does it apply to?
The MTD scheme will apply to companies, LLPs, unincorporated businesses and charities that are VAT registered and have a taxable turnover above the VAT registration threshold, which currently stands at £85,000 per annum. If that’s you, you’ll have to store your tax records digitally (for VAT purposes only) and send HMRC VAT return information digitally via MTD ‘functional compatible software.’
Before the Budget, many people thought the Chancellor was going to slash the registration threshold to £43,000. This would have seen hundreds of thousands more small companies falling into the MTD for VAT scheme. However, Philip Hammond confirmed during his speech that the £85,000 threshold will remain in place until at least April 2022.
If you’re VAT registered but your taxable turnover falls below the threshold, it’s up to you whether or not to opt in and file your information digitally.
When exactly does it come into effect?
MTD for VAT will officially apply to VAT return periods beginning on or after 1 April next year. This date has been pushed back until October 2019 for a minority of small businesses with unique requirements.
What records should be digital?
HMRC has listed the details that should be stored digitally in your so-called ‘electronic account.’ These include:
- Company name, address, VAT registration number and any accounting schemes you use
- Time of supply (the date you must declare output tax on)
- Value of supply (net value excluding VAT)
- Rate of VAT charged
It’s more important than ever to make sure your digital records are correct, ahead of the changes that come into force in less than six months’ time.
There’s a lot to remember and prepare for, so if you’re a Limited Company contractor who’d rather relax and forget about MTD, why not get in touch with Intouch about becoming one of our clients? We’ll do it all for you, so you can concentrate on what you do best – providing a great service to your clients and earning money!
This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.