Software for MTD
The first thing to know is that HMRC isn’t interested in building the software to use MTD, and won’t hold your hand while you learn how it works. Instead, they’ve been sending outside developers a list of requirements and more or less letting them sort out the nuts and bolts of it all themselves.
What does MTD-compliant software actually do?
The main points about “functional compatible software” are that it has to
- Talk directly to HMRC, bridging the gap between your system and theirs.
- Make and keep the VAT records digitally, and keep them for up to 6 years.
- Build and submit your digital VAT tax returns from the information it holds.
Can I continue to do my returns manually?
If you’ve been handling any of your VAT records or returns on paper, then you’re going to have to break that habit. HMRC’s grand vision for Making Tax Digital involves removing as many clumsy human fingers from the process as possible.
It goes far beyond just scrapping paper records, too. Once your VAT information’s been recorded in digital form, it has to have a fully digital journey all the way through to HMRC. To be compliant with MTD, you’ll have to keep your grubby mitts off that beautiful, pristine data the whole time.
The original idea was that your accounting software would handle all the recording and number crunching involved in preparing and filing your VAT returns on its own. However, that’s changed a bit since then.
Now, it’s okay to shift your information from one piece of “functional compatible software” to another along the way, as long as you’re importing/exporting it directly instead of transcribing it manually at any point. This throws up a couple of weird edge cases, of course – but basically, once the data’s been digitally recorded, if there’s someone typing the numbers in by hand then they’d have to be a literal robot not to mess up your MTD compliance. Here are some examples:
- Emailing your spreadsheets to your tax specialist to import into their software.
- Putting your records onto a flash drive and handing it to your tax specialist.
- Exporting and importing information from one application to another.
Not MTD compliant.
- Transcribing information from one piece of software to another by hand.
- Manually copy/pasting information from one application to another.
- Doing any of this on paper once the initial digital records have been made.
If this sounds complicated, then you've been paying attention. You don't have to struggle alone, though. We're here to help so get in touch whenever you need us.