Making Tax Digital (“MTD”) – UK

Making Tax Digital (“MTD”) is a digital tax system introduced in The United Kingdom on 1 April 2019. The main goal of MTD, apart from ecological and economic aspects, is making conducting business much easier for owners and accountants. 
MTD introduces obligation to conduct tax settlements through on-line services. To quote the British tax authorities: “HMRC’s ambition is to become one of the most digitally advanced tax administrations in the world”.

MTD is not a new solution, but until recently it concerned only these companies with turnover higher than the registration threshold for VAT purposes in UK (annual VAT taxable turnover £85.000). From 1 April 2022, HMRC will extend that reporting obligation to include all taxpayers registered for VAT purposes in the UK, regardless their turnover. HMRC assumes these changes will apply to approximately 1.1m additional VAT registered businesses.

From April 2022, MTD for VAT is obligatory for all UK taxpayers, which means they must keep records digitally and report their VAT returns to HMRC’s MTD interface via API. These VAT returns must be submitted as a JSON file.  Additionally, each business transaction is monitored by the tax authority in real time, as a result, in order to reduce tax fraud.

In accordance with HMRC’s guidelines, taxpayers have to keep the following records digitally:

  • Business name, address and VAT registration number
  • VAT accounting schemes
  • VAT on goods and services supplied
  • VAT on goods and services received
  • Adjustments made to returns
  • “Time of supply” and “value of supply” (value excluding VAT) for everything bought and sold
  • The rate of VAT charged 
  • Reverse charge transactions 
  • Total daily gross, taking into account a retail scheme

Keeping digital records is facilitated by a compatible software package or other software that connects to HMRC systems. If taxpayers use more than one software package to keep records and send VAT returns, they need to link them. In order to help businesses meet these requirements, HMRC provides on its website a list of ERP systems that meet the established standards. The whole list of these ERPs can be found here.

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