What is Making Tax Digital?

Making Tax Digital (MTD) is a major change to the administration of the UK tax system. Her Majesty's Revenue and Customers (HMRC) launched MTD in April 2019. MTD impacts how businesses, organizations, individuals, and agents keep their accounting and tax records. HMRC's changes also affect how information is submitted to HMRC. MTD is another step taken by HMRC to integrate and digitalize tax submissions.

Who does MTD affect?

From April 2019, most VAT registered businesses with a taxable turnover of more than £85,000 will need to follow the new MTD rules.  The rules are:

  • Sign up for Making Tax Digital for VAT

  • Use software that is compatible with MTD to submit VAT returns.  Note: Both QuickBooks Online, Xero, and Sage Business Cloud Accounting are MTD compatible.

  • Keep and maintain digital VAT records

How does A2X help with MTD compliance?

HMRC introduced MTD to automate and digitalize the UK VAT submission process. A2X is proud to be at the forefront of these rapid technological developments.  We provide streamlined Amazon and Shopify accounting data directly to Xero and QuickBooks Online.  This data is ready to use in order to complete your online VAT return.  

Here is how A2X works with the three areas of MTD compliance:

  • Signing up for Making Tax Digital for VAT.  A2X is not directly involved in this part of the process.  You can sign up for Making Tax Digital using HMRC's online portal or via the "Sign up for MTD" options offered inside of Xero or QuickBooks Online.

  • Using MTD-compatible software to submit VAT returns.  A2X is fully integrated with Xero and QuickBooks Online.  A2X consolidates your sales and fees for Amazon and Shopify.  A2X sends this information through to Xero or QuickBooks Online ready to be submitted as part of your MTD-compliant tax return.

  • Keeping and maintaining digital VAT records.  A2X collates all the transactions from a settlement period (Amazon) and payout period (Shopify).  It then sends these to your preferred accounting software.  This creates a digital audit trail that can be used in case of an HMRC inspection.  Also, A2X creates a detailed data file containing all the transactions in a period.  As A2X extracts this data directly from Shopify and Amazon, it creates a clear digital record of the transactions for the period.

Settlement data file attachment in Xero

Settlement data file attachment in QuickBooks Online

Settlement data file attachment in Sage

What about the requirement to report sales on a daily basis?

HMRC makes special allowances for dealing with third-party providers. HMRC acknowledges the difficulties involved in trying to clarify daily sales where a third party provides information in settlement periods.  Amazon and Shopify both provide their daily sales data in settlement periods.  As a result, we do not believe there is a requirement to report Amazon and Shopify Payout transactions on a daily basis.

With general eCommerce sales, the sale is reported on the day it occurs and is finalized with the payment provider.  Usually, businesses post a manual daily sales journal that includes all the finalized transactions for the day.

Amazon and Shopify act as third-party platforms which also incorporate the features of a payment provider.  In the case of Amazon, for example, Amazon is always both the selling platform AND the payment provider.

HMRC summarises its approach to third party agents below.

https://www.gov.uk/government/publications/vat-notice-70022-making-tax-digital-for-vat/vat-notice-70022-making-tax-digital-for-vat

As Amazon and Shopify both provide data on a settlement basis, A2X mirrors this treatment when compiling our settlement and payout data.  We always consolidate the data on sales, shipping revenues, fees, and reserved balances into one, easy-to-reconcile invoice or journal.  This follows the general advice from HMRC on supplies made by third-party agents.

Where a third-party payment provider is used via Shopify (for example, Paypal, Afterpay, or a POS unit) then A2X allows you to specify the payout frequency. You can select from daily, weekly, or monthly. This means that you can select daily payouts for other payment methods if you prefer to opt for daily reporting.


Disclaimer: you should always get tax advice from your accountant or tax adviser regarding compliance-related matters. A2X follows general advice only available via HMRC resources.

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