ICAEW shares the latest information about the Making Tax Digital (MTD) software that taxpayers and agents will need to keep digital records and to submit information to HMRC.
MTD for VAT
From April 2019, VAT registered businesses with taxable turnover above the VAT threshold need to use a commercial software product to submit VAT returns to HMRC or appoint an agent to submit the returns on their behalf. Businesses with the necessary skills can register with HMRC as software developer and develop their own bespoke software solutions, but this will be the exception. MTD software uses HMRC’s API (Application Program Interface) to send and receive data from HMRC.
For businesses within the scope of MTD it is a requirement to keep digital records. These records can be maintained in more than one program or software product. The use of spreadsheets, either to record individual transactions or as part of a suite of software and spreadsheets is permitted. However, the spreadsheet will need to be either API enabled or used in combination with an MTD compatible software product so that data can be sent to and received from HMRC systems. Where the records are maintained in more than one program or product there must be digital links between each of the pieces of software (the requirement for digital links applies from April 2021).
The MTD for VAT requirements will apply to all VAT registered businesses from April 2022.
MTD for income tax
From April 2023 similar digital record keeping and filing from software requirements will apply to income tax for those with income from self-employment, partnerships and property above a threshold of £10,000 turnover/gross income.
How an organisation approaches the selection of MTD compatible software depends on their existing level of technology maturity and their business model. For example, an organisation that makes use of very little technology may well wish to consider spreadsheet bridging software – an application that will be able to extract the contents of a spreadsheet and upload the return to HMRC. It is also worth considering the long-term future of an organisation. It is fair to say that the rate of change in technology and business has never been faster. That rate of change will only ever increase. As a result, all organisations will need to consider how they will remain competitive in the future. A case could, therefore, be made to invest in a more comprehensive application that could fulfil the needs of an organisation in the future.
Organisations that are already making extensive use of information technology will need to ensure that their software supplier is going to provide MTD compatible versions of the applications that they may use. In these cases the existing and future requirements of an organisation will need to be considered. In recent years we have seen a number of major changes to UK legislation; for example GDPR, auto-enrolment, open banking and MTD. In many cases it may be easier and more cost effective for an organisation to choose an application that resides in, or is at least connected, to the “cloud”. Applications that are hosted on the internet (in the cloud) are able to make connections with other digital services and as a result provide increased functionality and flexibility.
HMRC requires only some of the available APIs to be used in MTD software. For example, some products do not use the APIs that can make liabilities and payment information available in software. This should be considered when choosing a software product.
To help an organisation choose software the Business Application Software Developers Association (BASDA) has created a free guide to help you select business software:
During February 2019 the Tech Faculty produced a webinar on how to choose software. A number of questions were asked at the webinar which have been answered here.
MTD software providers
HMRC is working with a large number of software suppliers. More than 500 different products are available for MTD for VAT but, so far, only a handful of products are available for MTD for income tax.
It is essential that you check with your current software provider to understand if they are going to be providing MTD compatible software and whether the necessary upgrade will be provided for free or it will be necessary to upgrade to a newer product.
Lists of available software products are available on gov.uk and can be filtered according to a number of different criteria.
The value of company, staff and client data cannot be underestimated. Data protection has never been more important. Use the links below to find out more as to how an organisation can protect its data assets from cyber threats and in turn improve its business resilience.
ICAEW Technology Accreditation
ICAEW's Technology accreditation covers a range of products all designed for the accountancy industry. The scheme covers a range of products for members working in both practice and industry. Current accreditation categories include Accounts Production Final Accounts Software, Financial Products Software and Personal and Corporation Tax Software.
- 01 Jan 0001 (12: 00 AM GMT)
Tax payers need to be inherently more suspicious of emails and correspondence from HMRC and their agents, as they may not come from whom they purport to come from.
More records will be stored in the cloud as tax payers choose to use cloud-based software. Users need to have confidence in their cloud provider as well as where their data is being stored.
Top tips for keeping
Some basic cyber hygiene rules should be adopted to avoid losses to cyber criminals:
- Passwords should be strong, not shared, changed regularly and different from passwords used with other accounts. Change default passwords and be careful which users have administrative access rights.
- Users should be wary of emails that look suspicious (incorrect logos, poor spelling, requesting sensitive details). This is known as ‘phishing’. Use a mouse to hover over links to see if they are linking to where they say they are.
- Encrypt data on devices, and password secure smart devices.
- Keep systems up-to-date (install latest patches and system updates)
- Install anti-virus software
- Train your staff to understand where the risks are and what they can do to protect sensitive data; this is perhaps the single most important activity you should undertake.
Beware that people may phone purporting to be your agent, your bank or HMRC – anything to have access to your data. Do not give out or send sensitive data before being confident of who you are talking to.