Over the next few months you are likely to see in the media, information regarding the ongoing Government initiative known as “Making Tax Digital” (MTD).

MTD is part of an overhaul of the way taxpayers and HMRC communicate, the ramifications of which are already enshrined in law and will be far reaching. SAL have been considering the impact on you as our client and how you move toward meeting your new obligations, but also how this imposed efficiency will provide benefits and potential cost savings.

Now is an opportune moment to inform you in a considered manner about the changes happening and the underlying factors involved.

Before we delve into the emerging new environment that the HMRC MTD will create, SAL wish to assure you that as your agent and financial advisor, we shall be working with you at every stage, to ensure all changes will be controlled, monitored and compliant, but we do need to remain proactive

Government initiative known as
“Making Tax Digital” (MTD).

Countdown to 1st April 2019.

Technology is having a dramatic affect in how we handle and communicate data, and this has been extended to our tax system.

HMRC have embarked on a large initiative:

“To make the UK the most digitally advanced tax regime in the world”.

This change is already well-underway with HMRC changing their systems completely to allow succinct and immediate internal communication (Real Time Information RTI), in addition to how the tax payer reports to the UK tax authorities. The UK government is investing heavily in this project with amounts in excess of £1.3 billion having been budgeted. The project is expected to be ongoing as MTD modifies our taxation system. HMRC have already set up and are operating individual tax payer access accounts albeit it with limited sources of information available to you on your own tax position, but the first major tax payer reporting change dates are fast approaching, as highlighted below. Together we need to consider the appropriate actions to be taken, as to lag behind now will make it far more difficult and increase costs and incur penalties as time marches forward rather swiftly!

HMRC have stated that non-compliance with the digital requirements will in the future, incur punitive tax penalties and as these will be automatically applied appeals and rectification will be a costly exercise. Having considered the practical impact and potential results of reducing timeframes for information provision we believe that embracing digitalisation will reap rewards and we recommend you view these changes as an opportunity.

The underlying requirement for the tax payer is to force accounting records and the movement of financial data between software systems to a digital format, so, for example, re-keying figures from spreadsheets, billing using unlinked word documents and failing to reconcile payments in with work completed, will no longer be acceptable.

HMRC will not be providing any software; instead they are relying on the commercial market place to provide the necessary tools.  You are likely to hear the term API, (Application Programming Interfaces), these are recording and communication tools in digital format with functions which allow one software program to “talk” to another in a pre-prescribed (and ultimately, auditable!) manner. HMRC is establishing these for the software industry to use when passing information to the tax authorities. This drive for digitisation includes how HMRC will receive tax information from the tax payer or their agent and is being introduced on a tax by tax basis. VAT-registered businesses are first followed closely by everyone else!

VAT will be the first tax to fall under ‘Making Tax Digital’ rules on a mandatory basis for VAT tax periods starting after the 1st April 2019 – less than a few months hence. A Tax Notice has now been issued to support this change. This change is already in place and happening!

Income Tax, which relates to sole trader and property income, will be included under the ‘MTD’ rules on a mandatory basis no earlier than April 2020, but if the system works for VAT-registered businesses there will be no excuse to delay this any further.

Corporation tax will be included but no date has yet been set. For owner-managed businesses in a limited format however the relevant date will be when you as an individual need to become compliant as elements of the limited company such as dividends, rental income and benefits will need to be recorded in real time.

Below is a summary diagram highlighting the confirmed time frame:

1st April 2019

VAT-registered businesses with a taxable turnover above the VAT threshold (approximately £85,000) will be mandated to keep digital VAT records and send returns using MTD-compatible software from your first VAT period starting on or after 1 April 2019. The return is required within 30 days of the quarter end (as now).

1st April 2020

Income tax, including Sole Trader and Property Income but excluding holiday accommodation rentals, will be subject to the MTD on a mandatory basis at a date yet to be confirmed but after April 2020. The MTD for income tax will require accounting records to be kept digitally and will introduce quarterly reporting which will have to be submitted within 30 days of the quarter end. Although this will establish six returns for income tax; being each of four quarters, an update for any adjustments and a final confirmation of the tax position for the fiscal year. At present the deadline for making Income Tax payments will not be changing.

April 2019 is now only a few months away and will soon be upon us so if you are VAT-registered and have a turnover above the VAT registration limit (£85,000) you will be required to keep digital accounting records submitting the VAT returns using the new digital platform. The current HMRC online portal will no longer be available for filing VAT returns

i. If you use software and complete your own VAT returns.

We suggest you contact your software supplier to confirm their system will be compliant with the MTD requirements.


ii. If you use spreadsheets and complete your own VAT returns.

While spreadsheets have been accepted as digital records the passing of information out of the spreadsheets must be completed on a digital basis. These spreadsheets must therefore be able to submit the required data to HMRC digitally, for example, by using MTD-compatible bridging software. Bridging software allows relevant data to be digitally exchanged from the spreadsheet or other source where digital records are kept, directly to HMRC.

SAL believes there are additional benefits for you to advance your current record-keeping system towards online accounting software which could potentially save time, provide up to date information and assist in compliance. We recommend you consider seriously an alternative.  Of course there are a number of possible packages on the market but none of these have been developed with you in mind; so we have expended our time and expertise considering what is the most appropriate solution for the needs of our client base and we have found one which meets those needs and feeds into our own software interface with HMRC.

We can offer this online package which we share with you, allowing direct input by both of us in real time. We offer training and development across the digitalisation programme which may reap rewards beyond merely informing you of your tax liability at an earlier stage!


iii. If you use spreadsheets and SAL complete VAT returns on your behalf.

We will be contacting you over the next few weeks to discuss our solution as outlined in ii) above, which will facilitate improved reporting and planning opportunities.

The early adoption of software packages will expedite a far smoother progression through the new ‘MTD’ requirements when they are introduced.

+ What is ‘Making Tax Digital’?

Technology is having a dramatic affect in how we handle and communicate data, and this has been extended to our tax system.

HMRC have embarked on a large initiative:

“To make the UK the most digitally advanced tax regime in the world”.

This change is already well-underway with HMRC changing their systems completely to allow succinct and immediate internal communication (Real Time Information RTI), in addition to how the tax payer reports to the UK tax authorities. The UK government is investing heavily in this project with amounts in excess of £1.3 billion having been budgeted. The project is expected to be ongoing as MTD modifies our taxation system. HMRC have already set up and are operating individual tax payer access accounts albeit it with limited sources of information available to you on your own tax position, but the first major tax payer reporting change dates are fast approaching, as highlighted below. Together we need to consider the appropriate actions to be taken, as to lag behind now will make it far more difficult and increase costs and incur penalties as time marches forward rather swiftly!

HMRC have stated that non-compliance with the digital requirements will in the future, incur punitive tax penalties and as these will be automatically applied appeals and rectification will be a costly exercise. Having considered the practical impact and potential results of reducing timeframes for information provision we believe that embracing digitalisation will reap rewards and we recommend you view these changes as an opportunity.

The underlying requirement for the tax payer is to force accounting records and the movement of financial data between software systems to a digital format, so, for example, re-keying figures from spreadsheets, billing using unlinked word documents and failing to reconcile payments in with work completed, will no longer be acceptable.

HMRC will not be providing any software; instead they are relying on the commercial market place to provide the necessary tools.  You are likely to hear the term API, (Application Programming Interfaces), these are recording and communication tools in digital format with functions which allow one software program to “talk” to another in a pre-prescribed (and ultimately, auditable!) manner. HMRC is establishing these for the software industry to use when passing information to the tax authorities. This drive for digitisation includes how HMRC will receive tax information from the tax payer or their agent and is being introduced on a tax by tax basis. VAT-registered businesses are first followed closely by everyone else!

+ The time frame

VAT will be the first tax to fall under ‘Making Tax Digital’ rules on a mandatory basis for VAT tax periods starting after the 1st April 2019 – less than a few months hence. A Tax Notice has now been issued to support this change. This change is already in place and happening!

Income Tax, which relates to sole trader and property income, will be included under the ‘MTD’ rules on a mandatory basis no earlier than April 2020, but if the system works for VAT-registered businesses there will be no excuse to delay this any further.

Corporation tax will be included but no date has yet been set. For owner-managed businesses in a limited format however the relevant date will be when you as an individual need to become compliant as elements of the limited company such as dividends, rental income and benefits will need to be recorded in real time.

Below is a summary diagram highlighting the confirmed time frame:

1st April 2019

VAT-registered businesses with a taxable turnover above the VAT threshold (approximately £85,000) will be mandated to keep digital VAT records and send returns using MTD-compatible software from your first VAT period starting on or after 1 April 2019. The return is required within 30 days of the quarter end (as now).

1st April 2020

Income tax, including Sole Trader and Property Income but excluding holiday accommodation rentals, will be subject to the MTD on a mandatory basis at a date yet to be confirmed but after April 2020. The MTD for income tax will require accounting records to be kept digitally and will introduce quarterly reporting which will have to be submitted within 30 days of the quarter end. Although this will establish six returns for income tax; being each of four quarters, an update for any adjustments and a final confirmation of the tax position for the fiscal year. At present the deadline for making Income Tax payments will not be changing.

+ Summary and recommendations

April 2019 is now only a few months away and will soon be upon us so if you are VAT-registered and have a turnover above the VAT registration limit (£85,000) you will be required to keep digital accounting records submitting the VAT returns using the new digital platform. The current HMRC online portal will no longer be available for filing VAT returns

i. If you use software and complete your own VAT returns.

We suggest you contact your software supplier to confirm their system will be compliant with the MTD requirements.


ii. If you use spreadsheets and complete your own VAT returns.

While spreadsheets have been accepted as digital records the passing of information out of the spreadsheets must be completed on a digital basis. These spreadsheets must therefore be able to submit the required data to HMRC digitally, for example, by using MTD-compatible bridging software. Bridging software allows relevant data to be digitally exchanged from the spreadsheet or other source where digital records are kept, directly to HMRC.

SAL believes there are additional benefits for you to advance your current record-keeping system towards online accounting software which could potentially save time, provide up to date information and assist in compliance. We recommend you consider seriously an alternative.  Of course there are a number of possible packages on the market but none of these have been developed with you in mind; so we have expended our time and expertise considering what is the most appropriate solution for the needs of our client base and we have found one which meets those needs and feeds into our own software interface with HMRC.

We can offer this online package which we share with you, allowing direct input by both of us in real time. We offer training and development across the digitalisation programme which may reap rewards beyond merely informing you of your tax liability at an earlier stage!


iii. If you use spreadsheets and SAL complete VAT returns on your behalf.

We will be contacting you over the next few weeks to discuss our solution as outlined in ii) above, which will facilitate improved reporting and planning opportunities.

The early adoption of software packages will expedite a far smoother progression through the new ‘MTD’ requirements when they are introduced.

Hopefully you have found the information and explanations included here useful and you understand that while there is no need for worry, there is a clear requirement to consider how to effectively record your accounting records. As your accountants and tax agent, we are here to guide and assist with these developing requirements from HMRC.

More Recent News Arcticles

Call a member of our friendly team
01522 546606

2018-10-03T14:03:23+00:00