Making tax digital

What are the benefits?

'Making Tax Digital' aims to help you to manage your tax returns. It helps you save costs, time and space by getting rid of many existing paper-based processes. It also helps simplify your financial planning, so you have more time to focus on other aspects of your organisation.

Who needs to follow the Making Tax Digital rules?

All VAT-registered organisations need to follow the Making Tax Digital rules, by keeping digital records and using software to send their VAT returns.

If you're not VAT registered

Even if your organisation is not VAT registered, you might want to sign up for the voluntary scheme for Income Tax. This part of Making Tax Digital becomes mandatory in 2024, and we'll explore it later in the lesson.

What steps do you need to take?

This next section will help you to work through the steps you need to take to set up for Making Tax Digital. They are:

Let’s look at each step in more detail.

Step 1 - Select your software

Before you sign up to Making Tax Digital for VAT, you need to store your accounts online using Cloud software. This software allows you to store, transfer and access files over the Internet instead of keeping them stored in files on your computer. This makes transferring files safer and easier.

So the first step is to select and choose a software system that works for your organisation. This software can be either compatible VAT record-keeping software, or ‘bridging’ software that can link non-compatible software (such as spreadsheets) to the HMRC systems. The government have provided a useful system for selecting software.

Step 2 - Store your details

You'll need to store the following information digitally:

• Your organisation name, address and VAT registration number
• Any VAT accounting schemes you use
• The VAT on goods and services you supply or receive
• The 'time of supply' and 'value of supply' (value excluding VAT) for everything you buy and sell
• The rate of VAT charged on goods and services you supply
• Reverse charge transactions
• Your total daily gross takings (if you use a retail scheme)
• Items you can reclaim VAT on (if you use the Flat Rate Scheme)
• Your total sales, and the VAT on those sales (if you trade in gold and use the Gold Accounting Scheme)

Digital copies of documents covering multiple transactions made on behalf of your organisation by volunteers, third-party organisations, and employees’ expenses in petty cash

Step 3 - Sign up to Making Tax Digital

To sign up you'll need your email address, your VAT registration number and your latest VAT return. If you're a first-time user, you'll need to sign up for a Government Gateway ID. Existing users just need to sign in with their existing details.

You’ll also need the following:

• If you're a sole trader – Your National Insurance number
• If you're a limited company or registered society – Your company registration number and Unique Taxpayer Reference
• If you're a limited partnership – Your company registration number, Unique Taxpayer Reference and the postcode where you registered for self-assessment
• If you're a general partnership – Your Unique Taxpayer Reference and the postcode where you registered for self-assessment

Connect

Once you've signed up to go digital, you can use the new sign-in details you receive to connect to the HMRC systems. When you have logged on using the tools we mentioned earlier, go to 'Settings' then to 'HMRC Connections' and follow the on-screen instructions. You are now all set to go digital. If you need any more support, you can visit the GOV.UK page.

Need further info? Check out our FAQs here

Is it normal to need support?

Of course, everyone wants to get their tax right first time. The latest tax gap figures show that many find this hard, with avoidable mistakes costing £8.5 billion in the last period. This is why Making Tax Digital is trying to help support organisations by making the process simpler from records keeping to data transfer.

Where to go for support

If you need further help with the Making Tax Digital service, then the Government gives some helpful guidance on their website. You can also contact HMRC for specific guidance.

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