Making Tax Digital and SAP Business One
What is Making Tax Digital (MTD)?
Making Tax Digital (MTD) is an initiative by the UK government tax authorities, HMRC, to provide businesses and individuals with their tax information in a digital form and to enable VAT (value added tax) submissions to be made electronically and to enforce digital record keeping via computer software.
As a result of this there is a legal requirement for customers (with a taxable turnover above the VAT registration threshold) using SAP Business One, to provide VAT Returns electronically with an effective date of April 1, 2019.
HMRC’s Making Tax Digital is already underway with VAT but it will affect all type of taxes.
What does MTD mean for VAT?
If your business is VAT registered and your annual turnover is at least £85,000, HMRC will have contacted you about submitting your VAT returns using the new MTD process. These rules apply to VAT periods beginning on and after 1 April 2019.
Small businesses that are VAT registered, but whose turnover for the year to 31 March 2019 was less than £85,000 (the current registration threshold at time of writing), are not required to be part of MTD at this stage, but they can join on a voluntary basis by getting in contact with HMRC.
If your business is VAT registered but you have a turnover lower than the threshold and decide not to opt into MTD, you will need to keep an eye on your turnover for each 12-month period. If this total exceeds the registration threshold you will have to join MTD on your next VAT period.
VAT registered businesses that fall outside the scope of MTD can carry on submitting VAT returns manually as they do now using the online VAT return form on https://www.gov.uk.
Prevention of late filing and errors
When using MTD you must keep all your VAT records in a digital format. You also have to submit your VAT return digitally through MTD-compliant software.
HMRC wants to reduce human error as digital tax means no more manual data entry when the users submit their VAT forms. By automating submission, MTD will help businesses manage their tax affairs by alerting them before payment is due and keeping them on top of their tax liability. The theory is it will prevent overdue payments and penalties from building up .
Saving time and efficiency when using MTD
For small to medium-sized businesses (SMEs), digital accounting saves hours of time and resource compared to manual methods, giving precious time back to focus on growing the business.
MTD Compliance: General Information
MTD: VAT Submission Dates
The VAT return is due on the same day as previous. For quarterly returns this is seven days after the end of the month that follows the end of the VAT quarter.
MTD: VAT submission payment
The VAT due is payable as it is now – by electronic transfer, BACS, direct debit or at a bank. Businesses using the VAT annual accounting scheme, or who make payments on account to HMRC, will generally pay the VAT due by standing order.
Digital records and MTD
You will be responsible for keeping your business records in a digital form. This means recording at least these data points electronically for each transaction:
- Sales – AR
- Date of sale (tax point)
- Value excluding VAT
- Rate of VAT charged
- Purchasing – AP
- Date of purchase (tax point)
- Value net of VAT
- Amount of VAT to reclaim
HMRC also require you to record the following information digitally so it knows where the VAT return has originally come from:
- Your business name.
- Your business address or principle business address.
- VAT registration number.
MTD will not stop at VAT:
VAT is just the start. Other taxes will also be affected by MTD, although not until April 2020 at the earliest. The government have not yet specified exact dates for compliance, but this is a rough guide of what to expect.
Making Tax Digital will not be mandated for taxes other than VAT until April 2020 at the earliest.
MTD for income tax will be mandatory from 2021 at the earliest. When the government decides on a date, MTD compliant income tax returns will become mandatory from the start of the first accounting period in that tax year.
Corporation tax is likely to be MTD compliant at the same time as income tax (2021).
MTD Compliance – Getting Ready
Register for an online Government Gateway account
The Government Gateway lets you use many national and local online government services safely and securely. Once its set up you can use it to pay taxes, check your tax account status and receive updates and alerts from HMRC.
If you have not already created one you can set up your account at www.gateway.gov.uk Please make sure you have the following information at hand:
- Your name
- Date of birth
- National insurance number
- Email address
You will be asked to create a password. Once the process is complete, you will get a user ID, which you can use to access the services you want (such as MTD for VAT).
HMRC will send you an activation code in the post and you will only be able to progress to the next steps once you enter the code.
What to do if I already have a gateway account?
If you already have a government gateway account and you have decided to use MTD to submit your next VAT periods, you will need to notify HMRC of this change. An email will be sent as a confirmation of this modification.
Please note that once you have signed up to submit your returns via MTD you will not be able to submit your return manually after this as this step is irreversible.
Find out when you need to make your first MTD submission
If your taxable turnover is above the VAT registration threshold then MTD applies from your first VAT period starting on or after 1 April 2019.
There are some exceptions. Even if your taxable turnover is above the threshold you will not have to follow the MTD rules if:
- Your business is run entirely by practicing members of a religious society whose beliefs are incompatible with the regulation’s requirements (for instance, using computers is not allowed).
- You are undergoing bankruptcy procedures.
- You cannot easily use digital tools to keep your business records or submit your returns – for instance due to age, disability or remoteness of location.
If you think you meet one of these exceptions, contact the VAT Helpline to get confirmation.
According to HMRC, “VAT taxable turnover is the total value of everything you sell that is not exempt from VAT”.
SAP Business One and Making Tax Digital
The new MTD functionality will contain five main areas that will build the process of the user’s VAT submission to HMRC:
- BAS Code Definitions
- BAS Report Generation
- BAS Report Retrieval
- EDM (Electronic Document Monitor)
- Messages and alerts window
BAS Code Definitions:
BAS Codes definition works in a similar way to Tax Declaration Boxes. If upgrading, BAS codes are automatically created on a one-to-one basis from Tax Declaration Boxes, retaining the relevant details and settings. Declaration format templates are also upgraded.
BAS Report Generation:
BAS Report Generation behaves in a similar way to Tax Report Generation functionality. BAS Report Generation allows documents to be associated with reporting periods and select the transactions to be considered on the MTD submission for the selected period.
BAS Report Retrieval:
Once the BAS report has been generated, you can retrieve the report for review and save the report data to be submitted to HMRC.
The BAS report retrieval is the final step before the MTD submission to HMRC, It will contain the same data selected on the previous BAS Report Generation but with an “Export” option, which, once selected will send the submission to the tax authorities.
Electronic Document Monitor:
The Electronic Document Monitor shows the details of electronic communication with HMRC. Four View Types are available representing the different mandatory and optional MTD processes and different information is displayed depending on the view type chosen.
- VAT Obligations
- VAT Declarations
- VAT Liabilities
- VAT Payments
An obligation status will be visible on the EDM. If the VAT obligation status shows as “open” this will mean the period is due to be submitted to HMRC. Where an obligation with a status of “Fulfilled” will mean the period has been successfully submitted and the information received by HMRC.
Messages and alerts window:
Messages and alerts are an important part of the MTD submission process, messages are displayed to alert the user when new obligations are due to be submitted to HMRC or when a return has been received by HMRC.
Do you need help?
HMRC know the switch to making tax digital is not easy for everybody. If you are not sure what to do, there is help and support for MTD available.
HMRC’s MTD support website will guide you through the MTD process; you can find the following list of subjects to help you with the transition process:
- How Making Tax Digital for VAT affects your business
- Getting ready for Making Tax Digital
- Getting compatible accounting software
- Keeping digital VAT records
- Agent services and Making Tax Digital
- Creating an agent services account
- Signing up for Making Tax Digital for VAT
- Making Tax Digital for Income Tax
HMRC’s website URL:
Contact Frontline for information on how to work with MTD in the UK in SAP Business One.