Making Tax Digital (MTD) is an initiative from HMRC (Her Majesty’s Revenue and Customs) to digitise tax return for businesses. The overall goal is to reduce user errors in manually entering figures, ensure there is a full digital audit trail, and ultimately make the UK tax system more effective, efficient and easier for taxpayers to get their tax right.
HMRC indicate that VAT is their current priority, but they intend to extend Making Tax Digital to cover other taxes too, in future.
From 1st April 2021 it will be a legal requirement for all applicable businesses with an annual turnover of more than £85,000 to keep digital records and use MTD compliant software to submit their VAT returns.
What is MTD-compliant software?
The Making Tax Digital compliant software required is the accounting system/s being used and not the practice management system. Details of MTD compliant accounting systems can be found here.
What does this mean for my practice management system?
Your practice management system (PMS) already captures and retains the individual financial transactions (sales, etc.) and the VAT that applies to them, i.e. your PMS holds the financial transactions as digital records.
Figures for all sales, etc. processed through your PMS can already be extracted via various reports in spreadsheet format to provide the information required for your VAT returns (total sales, total VAT charged, etc.), i.e. digital linking is available from your PMS to your accounting system/s. Therefore, there is no requirement to make changes to PMS to support HMRC’s MTD for VAT requirements.
Requirements summary of MTD for VAT:
| Requirement from HMRC |
Addressed in practice management software? |
Addressed in accountancy software? |
| Keep digital records of transactions |
Yes, for financial transactions in PMS, i.e. client sales etc. |
Transactions covered by PMS don’t need to be replicated in here, only those outside PMS. |
| Digital linking |
Yes, via ability to export high level totals and/or transactions in .csv format. This is one of HMRC’s accepted methods of ‘digital linking’. |
Needs to be able to accept the data which originated in upstream systems, without the need for manual editing of values. |
| Submit VAT returns directly to HMRC |
n/a PMS contains only one aspect of the information needed for the VAT return |
Either needs to be able to do this, or must be able to export the data via suitable digital linking into a system that can meet this requirement. |
How do I export reports from RoboVet?
We recommend you run the Period End Summary report. This report should be available the day after the Accounting Closed Date has been set. To run this report please follow the steps below.
- All reports > Financial > Period End Summary > Run
- Export
How do I export reports from RxWorks?
We recommend you run the Transaction Type Analysis report. To run this report please follow the steps below.
- Reports > Select B.Accounts, Debtors & Tax > 5.Tax > Transaction Type Analysis > Run
- Export
What is the process once I have exported the reports from my practice management system?
Step 1: Run the recommended report in your PMS
a. Extract the report
Step 2: Re-format the report to fit accounting software requirements (avoid manual editing of values)
a. Practice re-formats the report, or the practice sends the report to their accountant who re-formats the report
b. Report is imported to the accounting system
Step 3: Prepare VAT return within the accounting software (avoid manual editing of values)
a. VAT return prepared by practice, or prepared by their accountant
b. The VAT return is submitted to HMRC using MTD-compliant software
Step 4: MTD-Compliant VAT return received by HMRC
For additional information, we urge you to speak with your accountant or financial adviser.
What is next in Making Tax Digital for VAT?
All VAT registered businesses will be expected to file their tax returns digitally from April 2022.
Covetrus will continue to review areas of additional support to help our practices achieve compliance, we welcome your feedback.
Where can I get further information about MTD?
The official UK Government guidance
A list of MTD compliant accounting systems