UK guide to Making Tax Digital jargon

FeaturedMoney

Written by:

 

Making Tax Digital is here. And 52% of business owners are worried about getting up to speed*. At QuickBooks, we want to help you cut through the complicated accounting terms and abbreviations, so you know where you stand. Why not bookmark our handy Jargon Buster? Then you’ll never confuse your ASA with your ITSA again.

Accounting software

This is a digital tool to help you record and analyse a company’s finances. Accountants or business owners can use accounting software to record transactions and contacts, generate reports, create invoices and purchase orders, track stock, monitor cash flow and more.

Agent

A professional who submits VAT returns on your behalf. Also known as an accountant or bookkeeper.

______________________

SPONSORED: Find a Qualified Financial Advisor

1. Finding a qualified financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to 3 fiduciary financial advisors in your area in 5 minutes.

2. Each advisor has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests. If you're ready to be matched with local advisors that can help you achieve your financial goals get started now.

______________________

 

 

 

Agent Authorisation or a Form 64-8

If you want an Agent to act on your behalf, you need to give them authorisation through HMRC online or using Form 64-8. This form can cover a single tax (like PAYE or VAT) or all business taxes. It’s worth noting that you can have several agents acting on your behalf if you want – for example, one for your PAYE and another for your VAT.

Agent Services Account (ASA)

An ASA allows an accountant to access HMRC online services on behalf of their client. This means they can communicate with HMRC directly through software so their clients are MTD compliant.

Application Programming Interface (API)

An API is software that allows two applications to talk to each other. In the case of Making Tax Digital, an API enables two-way electronic communication between HMRC and the taxpayer.

Bridging software

This is a digital tool which provides a digital link between the VAT data stored in spreadsheets and HMRC’s portal. Bridging software allows the data to be submitted digitally, in line with with Making Tax Digital rules.

Business Tax Account

An online HMRC account where limited companies, partnerships, landlords and sole traders can see all of their tax information. This could include VAT, Payroll (PAYE), CIS (Construction Industry Scheme) and Corporation Tax.

Client

The official way an accountant or bookkeeper might describe a person or business who pays them to manage their finances and tax.

Cloud-based accounting software

Cloud accounting software stores your financial data on a remote server. This means you can access the information at any time, from anywhere.

Digital audit trail

This is a record of every step in a business transaction. It might include financial information like invoices and receipts from suppliers and customers, as well as payroll records contracts and related information.

When individuals complete VAT returns in line with Making Tax Digital they’ll leave a clear digital audit trail, showing who entered or amended data and when this happened.

Digital links

To comply with Making Tax Digital, you need to submit your records directly to HMRC without typing in any figures or copying and pasting data. Instead, data must be transferred electronically using a ‘digital link’ like those in place between HMRC and QuickBooks.

Digital records

Businesses must store certain information in HMRC-recognised software to comply with Making Tax Digital. These are known as digital records and  include:

  • business information, like name of the company, address and VAT registration number
  • transaction data like receipts and invoices

Digital Tax Account (DTA)

Your Digital Tax Account covers both a Personal Tax Account and a Business Tax Account.

Government Gateway account

This is created when you sign up for government online service for the first time. Business owners will need to access or create a Government Gateway account to communicate with HMRC.

HMRC

Her Majesty’s Revenue and Customs (HMRC) is the tax authority of the UK Government.

MTD-compatible

The software you use to keep records of business finances should meet all of HMRC’s Making Tax Digital rules (also known as ‘being MTD-compatible’).

MTD deadlines

In April 2019 Making Tax Digital for VAT was introduced for most businesses with a taxable turnover above £85K.

The next deadline takes effect in April 2022, when almost all VAT registered businesses will have to comply, unless they’re exempt. Fast forward to April 2023 and self-employed (unincorporated businesses) and landlords earning more than £10k will need to follow the MTD rules for Income Tax Self Assessment (ITSA).

MTD for VAT

Making Tax Digital for VAT was introduced in April 2019. Since then, most VAT-registered businesses with taxable turnover above £85,000 must keep digital records and submit their VAT returns using HMRC-recognised accounting software. MTD for VAT will be rolled out to all VAT-registered businesses from April 2022.

MTD for Corporation Tax

The extension of MTD to cover Corporation Tax will mean big companies will need to comply with another level of record keeping and filing requirements for Making Tax Digital. The date for this is likely to be 2026, but that hasn’t been confirmed yet.

MTD for ITSA

Hot on the heels of MTD for VAT, Making Tax Digital for Income Tax Self Assessment means most individuals and landlords who pay income tax will need to keep digital records and submit quarterly reports to HMRC. These submissions will be used to estimate the amount of tax you owe before you make a final annual submission.

MTD for VAT phase 2

By April 2022, a second group of business owners will have to comply with Making Tax Digital for VAT. Almost all VAT-registered businesses will be affected by this.

MTD penalties

On 1 April 2021, HMRC introduced a penalty system for those who haven’t complied with Making Tax Digital for VAT. Small businesses owners may have to pay fines if their tax returns are consistently late or if they fail to follow MTD rules.

Making Tax Digital (MTD)

HMRC’s Making Tax Digital initiative aims to make tax admin more efficient and accurate by introducing a system of digital record keeping and submission. It means a lot of people will need to start managing their tax differently. Businesses need to comply at different times, starting with most VAT-registered businesses with a taxable turnover over £85k (April 2019) and followed by other VAT-registered businesses (April 2022). For more information visit the QuickBooks guide to Making Tax Digital.

Multi-Factor Authentication (MFA)

Multi Factor Authentication (or Two Step Verification/2FA) protects against cyber crime by asking for additional information from a user when they sign into software.

Online Agent Authorisation (OAA)

This is the electronic way to authorise an accountant to act on behalf of their client.

Personal Tax Account (PTA)

Online Personal Tax Accounts were launched by HMRC to help individuals view and edit their details online.

Quarterly reporting

This will be part of the Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) which starts in April 2023. Every 3 months, landlords and sole traders earning more than £10,000 a year will have to send a summary to HMRC.

Soft landing period

The soft landing period gave businesses extra time to comply with Making Tax Digital for VAT without risking any penalties. It ended on 1 April 2021.

Tax gap

This is the difference between tax that is owed to HMRC and what is actually paid. Some of this is down to deliberate tax avoidance but it’s often the result of accidentally typing in the wrong figures. Although it may only be a few pounds in each individual case, it all adds up — and means a lot less money to spend on public services. By ending manual data entry, Making Tax Digital will help to solve this issue and close the tax gap.

VAT

Value Added Tax is applied to almost all goods and services sold., with rates ranging from 20% (the standard rate) right down to 0% (for things like food and children’s clothes).

The VAT you pay when you buy a product is collected by the business that supplies it.  They offset this amount against the VAT they pay to their own suppliers.

VAT rates change from time to time, but QuickBooks users can be confident they’ll find all the latest rates at their fingertips.

VAT registered

To be VAT registered you must list your business with the government as active in production and sales. This means you can reclaim any VAT paid on company purchases, so it makes a lot of financial sense for some businessesIf your turnover is over £85,000, then you don’t have any choice – you have to register for VAT.

VAT return

This is the form submitted to HMRC which shows how much VAT needs to be paid (or reclaimed) by a VAT-registered business. Most VAT returns are submitted quarterly, 2 months and 7 days after the accounting period – so 7 October for the period ending on 31 August, 7 November for the period ending 30 September etc. Some businesses may do a monthly or annual return, if they have agreed this directly with HMRC.

VAT threshold

When a business’s taxable turnover goes over £85,000 (the VAT threshold) they need to register for VAT with HMRC (if they haven’t already done this). Most VAT-registered businesses with a taxable turnover above £85k have been expected to comply with Making Tax Digital for VAT since April 2019.

XML submissions

XML stands for Extensible Markup Language (if you were wondering). This is one of the old ways that HMRC used to accept VAT returns but it ended in April 2021. From April 2022, you’ll need to send direct submissions to HMRC using MTD-compatible software like QuickBooks.

We hope you found our Making Tax Digital jargon buster helpful. Read more about Making Tax Digital on our blog or visit the MTD hub to make sure your business stays compliant.

 

This article originally appeared on The QuickBooks Resource Center and was syndicated by MediaFeed.org.

 

Featured Image Credit: DepositPhotos.com.

AlertMe