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What Contractors need to know about Making Tax Digital for VAT


Making Tax Digital (MTD) for VAT comes into force in April 2019, and it’s important that VAT registered contractors are aware of the new requirements, so they can make the necessary preparations.

As with any compulsory change, there is bound to be some resistance and MTD does indeed have its critics. In general, though, as long as you’re informed and you know how it affects you, most contractors have no need to worry.

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Who will have to use the new process?

If you’re not registered for VAT this change won’t affect you at all.

If you registered for VAT voluntarily and your taxable turnover has never been above the threshold for VAT, (£85,000 2019/20) you’re exempt for now. Everyone else will have to use the new process from April 2019.

If you’re exempt you can still choose to use the new process by informing HMRC before the start of your next VAT period. This makes more sense than you might think. Embracing the change now, rather than delaying and dealing with a future compulsory rollout, may well be the best advice. This is particularly true if you’re already using approved software, which will mean you can make the change now with little extra work or cost. 

What MTD means for contractors

For those taking part, whether voluntarily or not, MTD requires you to keep records and file VAT returns using “functional and compatible software.” To qualify, software needs to:

  • Record and preserve digital records
  • Provide HMRC information and returns using the API platform
  • Receive information from HMRC using the API platform.

It’s worth noting that you don’t necessarily need a single software package that does all three things. For example, you could use a spreadsheet program to keep your records, and a separate reporting program to communicate with HMRC. If you do use more than one piece of software, they must be “digitally linked” which means data must be transferred digitally between them. You couldn’t, for example, manually type or copy and paste information from your spreadsheet into your reporting software.

If you work with Orange Genie Accountancy

If you’re lucky enough to be a client of Orange Genie Accountancy, you’ll have access to FreeAgent’s excellent online accountancy software, and we can confirm that it’s approved by HMRC as compliant with all MTD requirements. In fact, the way you enter data into FreeAgent won’t change at all as the software will generate the required reports from the information you already provide.

Because this change won’t mean any additional work or cost for our clients, we’ll be switching all our VAT registered clients over to MTD for VAT when it rolls out in April. If you have any questions about it, please contact you Orange Genie accountant.

What else do contractors need to know?  

If you’re not using FreeAgent you can find a list of all approved software providers here. If your chosen supplier is not listed, we’d advise you to contact them about their intentions, or choose another supplier who is listed.

HMRC has rolled out MTD for VAT first to test the system and iron out any bugs. The clear intention is that digital record-keeping and reporting will become mandatory for other taxes as well, and this could start as early as 2020. For contractors who work through a limited company, it makes sense to start using approved accounting software sooner rather than later.

For more information about MTD, or if we can help in any way, please contact our expert team on 01296 468 483 or email info@orangegenie.com.


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