Making Tax Digital: What Are Digital Records? | And why do you need to keep them? |
 POSTED BY ALISON MEAD ON 17/12/2018 @ 8:00AM
Keeping your accounts in a digital format is a requirement of Making Tax Digital, and it will be mandatory for VAT registered business over the VAT threshold from April 2019 ...
If you are a VAT registered business, then Making Tax Digital will affect you first! copyright: rawpixel / 123rf
It will eventually roll out to other businesses and sole traders in the future, but there are a number of date thresholds that you need to be aware of for different types of business.
"So, what about VAT registered businesses?"
Any business that has a turnover of £85,000 should be VAT registered and paying VAT on their sales of 20%, the current UK standard rate. From 2019, all transactions must be recorded using software that is compatible with Making Tax Digital so they can submit a VAT return automatically each quarter.
Some software will record all your VAT records and accounts information. However, there are some records that by law must be kept and preserved in their original form, either for VAT purposes or other tax purposes. For example, you must still keep a C79 (import VAT certificate) in its original form.
Here's a great example!
A business receives an invoice and types selected data contained in the invoice into functional compatible software. They must still keep the invoice in its original form as the data in the software is not an exact copy of the invoice.
And another!
A business has MTD compatible software that scans the invoices received and puts the information directly into its ledger. If the image is retained and contains all the detail required for VAT purposes, then the business does not need to keep the original invoice unless it is required for some other reason.
And what if you deregister from VAT?
If you do choose to deregister from VAT because your turnover is below the £85,000 VAT threshold, you will no longer need to keep digital records in functionally compatible software, but you must retain your VAT records for the required period.
If you're wondering what HMRC mean by 'functional compatible software', well, it is a software program, or set of software programs, products or applications, that must be able to:
record and preserve digital records provide to HMRC information and returns from data held in those digital records by using the API platform receive information from HMRC via the API platform
In effect, this means your accounting system like Sage or Xero.
HMRC expects that there will be software products available that will perform all of the functions listed above, though some software programs will not be able to perform all of these functions by themselves.
For example, a spreadsheet that is used to record and preserve your digital records may not be able to perform the other two functions listed above, but can still be a component of functional compatible software if it is used in conjunction with one or more programs that do perform those functions.
The complete set of digital records to meet Making Tax Digital requirements do not all have to be held in one place or in one program. Digital records can be kept in a range of compatible formats. Taken together, these form the digital records for the VAT registered entity that HMRC requires.
"Would you like to know more?"
If you'd like to find out more about Making Tax Digital and want to know if your Sage or Xero accounting system are compatible with it then do give me a call on 01604 420057 or click here to ping me an email and let's see how I can help you.
Until next time ...
ALISON MEAD
More about Alison Mead ... |  | Alison loves bookkeeping and supporting bookkeepers. She has been helping clients to be better bookkeepers in Sage 50 for over 24 years and has been Xero Accredited in accounts and payroll for a number of years too.
She specialises in a very unique hand-holding method of training, helping bookkeepers and business owners to use their accounts software as and when they need support in setting up and producing their invoices, reports and financial information.
Alison combines her role at Silicon Bullet with her Forever Living network marketing businesses and is often to be seen at business networking meetings as she likes to keep busy.
You know what they say: if you want something done well ask a busy person!
|
|
More blog posts for you to enjoy ... | | | | | | | | |
|
