Making Tax Digital - What you need to know
When HMRC announced the new Making Tax Digital (MTD) laws, many were unsure what exactly this meant for them. As experts in the financial sector, we’re here to break this down for you and hopefully clarify any apprehensions you may have about it. Firstly, MTD represents a significant change in the way a business submits its transactions. It comes into force on the 1 April 2019, and the implications presented by this initiative has the potential to significantly impact any organisation that has to submit tax returns. Whilst previously everyone has had their own way of recording data and bookkeeping, now with MTD coming into place, it will mean there is consistency across the board, with HMRC’s ultimate goal being to become more digitally focussed. So, what is MTD? Ultimately MTD is the process of certain records, clarified by HMRC, being held digitally once MTD takes effect.
- your business name
- the address of your principal place of business
- your VAT registration number
- any VAT accounting schemes that you use
Regardless of how you had previously held data, this will now be digitally recorded moving forward. Whether this is data received in Excel, paper-based or through an online bookkeeping software, PS Financials can help you submit these returns seamlessly. Firstly, it’s outlined that for each supply you make, which is recorded as part of your tax return, the following must be recorded:
- time of supply (tax point)
- value of the supply (net value excluding VAT)
- rate of VAT charged
If you’re not using a system like PS Financials, the process of then digitalising these records and submitting your tax return follows the below route.
- Digitalise record keeping process – all records must be online/digital
There are various ways to do this, including the most obvious which is to manually enter this data. Whilst this may be the most obvious way to complete this task, there is a high risk of error associated with this as a result of human error.
- Finalise details
Following this, the details and data inputted will need to be confirmed and finalised. This consists of ensuring all information is correct so to determine tax computations and finalise the tax position. Through PS Financials’ sophisticated software, various reports can be pulled in a quick and effective way to send to clients, again providing a method which is extremely time-efficient.
- Send to HMRC
Once this step has been followed, the data must then be sent across to HMRC for processing. This data will be reported on quarterly from the first submission after MTD comes into effect. Following the initial submission, all entries to follow must be done using digital links and each piece of software must be digitally linked to other piece of software to create the digital journey, so in basic term this means through an integrated system. PS Financials can do this all this for you quickly and effectively. HMRC defines a digital link as the following: “A ‘digital link’ is one where a transfer or exchange of data is made, or can be made, electronically between software programs, products or applications. That is without the involvement or need for manual intervention such as the copying over of information by hand or the manual transposition of data between 2 or more pieces of software.”
So, what counts as a ‘digital link’?
According to HMRC, it can NOT be:
A ‘cut and paste’ to select and move information, either within a software program or between software programs.
However, it can include linked cells in spreadsheets, for example, if you have a formula in one sheet that mirrors the source’s value in another cell, then the cells are linked. It can also include emailing a spreadsheet containing digital records to a tax agent so that the agent can import the data into their software to carry out a calculation (for instance, a Partial Exemption calculation). Transferring a set of digital records onto a portable device (for example, a pen drive, memory stick, flash drive) and physically giving this to an agent to import that data into their software is also allowed, as well as XML, CSV import and export, and the download and upload of files. Lastly, automated data transfer and API can be used as a digital link.
Make sure you’re ready for Making Tax Digital. To find out more about how PS Financials can help you streamline your MTD processes, contact us at firstname.lastname@example.org