Everything you need to know about Making TAX Digital

Everything you need to know about Making TAX Digital (MTD) for VAT: An HMRC initiative

Overview of MTD for VAT

Digitalization has long been into existence, and it is time to take the tax up there. Hence, HMRC decided to move in the digital direction. HMRC’s vision to digitalize the tax system for the UK is already in process. This transformation started in April 2019, with the idea to turn HMRC into the most advanced digital tax system in the UK. It is also said to cover income tax and corporation tax too. But the first and most important is VAT.

When did MTD requirements for VAT come into effect?

Making TAX Digital (MTD) requirement s for VAT came into effect from 1st April 2019. Businesses are understanding the importance and slowly moving to the MTD mode, so they have no issues any further.

How many businesses will the MTD for VAT affect?

The introduction of MTD for VAT is going to be affecting 2.3 million UK vat registered businesses whose turnover exceeds the VAT registration threshold which is £85,000 now. If you fall into this bracket, then it is going to affect your business. All businesses and organization are now required to keep digital records of the same.

What is the Objective of Making TAX Digital for VAT?

Other than having a world-leading tax system, the idea behind these changes is to make certain improvements, by taking the taxation online. HMRC had calculated an amount they expected to collect in the financial year but failed to. The main objective behind implementing MTD for VAT was to close the gap of £12 billion. Once everything goes digital, they expect to clear this gap and make taxation easy for the taxpayers. With the advancement in technology adopting the same makes life easy for all, the government and the taxpayers.

How does MTD for VAT intend to help businesses?  

Making TAX Digital (MTD) for VAT is going to be a boon to the businesses. It will help the business in major things that would have been difficult to manage manually. Let’s take a close look at them:

  1. Record Keeping: with everything going online, it will be easy to keep records and maintain the same. Having all data online will improve the entire process. It gives you easy access and allows you to store all in the system from where you will need to upload it.
  2. Awareness on Tax Liabilities: Once everything is online, one is more aware of his tax liabilities. He will have a clear and better picture of the same.
  3. Reduces Errors: With this new system in picture the possibilities of errors will zero down to none and soon the existing errors already existing in the manual system will be rectified too. Making it error-free and easy for the taxpayers.

What is the current process for a business to complete the UK VAT return?

Currently, the businesses in the UK use the same old manual method. Where they add all their details in the XML sheet which is later uploaded on the software and then submitted to the UK Tax government. This process is time-consuming and you might lose data if not taken care of properly.

How is VAT Changing?

The biggest change is that from April 2019 they stopped taking any kind of paper returns. The existing HTML HMRC portal will be shut soon. According to the new MTD for VAT businesses need to record transaction data electronically and submit their VAT return to HMRC through an API-enabled spreadsheet or software.

How is Making TAX Digital (MTD) for VAT going to work?

According to the new VAT return filing system, all businesses will be able to complete 4 quarterly filings. The VAT return will now be generated through digital business records. The VAT return data can be gathered by fully functional compatible software. All data will be securely transmitted to the HMRC through the MTD API route.

Will HMRC provide free software?

No, there will be no free software from HMRC to help them. The businesses will have to find the right tool for their business. There are many software providers you can approach depending on the need and requirements of the business. Cygnet’s R7VAT software is also among the approved ones and is listed on the HMRC’s site. You can find the best one you based on your company’s requirements.

Records required by businesses

As a business, you need to keep in mind to have records of the following

  • Name of the Business
  • Place of Business
  • VAT Number
  • VAT accounting Schemes used if any
  • VAT Account
  • Total Adjustments required

Information on VAT Sales & Purchased you need to maintain

It is very important to keep a record of your sales and purchases to have everything in place.

  • Date of Supply
  • Net Value
  • VAT charged
  • Total adjustment or corrections made in the existing VAT account
  • Total of Sales VAT as per the different VAT rates
  • DGT- Daily Gross takings for the retailers using the retail scheme.

What will the penalties be like?

HMRC will be using the point-based penalty model. As per this model businesses will get a penalty point every time they fail or miss to file a return before the due date. Based on the frequency of the submission missed the penalty will be charged on a certain threshold.

  • 2 Points for annual submissions
  • 4 points for quarterly submission
  • 5 points for monthly submission

Now that all this has already be incorporated, how can you find help?

How R7VAT can help to Automate, Manage VAT & Stay MTD Compliant

R7VAT can help you in many ways than you can think of. R7VAT is HMRC approved MTD solution and is listed on their site too. We use a proprietary 7-stage methodology for tax & technology that helps to extract tax data from different systems and validates it as per the law helping you prepare for the VAT return filing. Let’s look at the features Cygnet’s R7VAT has to offer that will help you stay Making TAX Digital (MTD) Compliant, automate and manage your VAT.

R7 VAT Dashboard
R7 VAT Dashboard
  • Business Intelligence Reports
  • Comprehensive Dashboard
  • Fully Automated Solution
  • Strong Data Validation
  • Data Sync Utility
  • Agents Dashboards
  • Easy Quick Mapping Process
  • Easy Integration & Customization
  • 24*7 Active Support & Helpdesk

To know in detail about these features you can request a DEMO here. If you are looking for a solution that can help your business file their VAT return on-time and be MTD compliant then R7VAT is the right choice.

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