Making Tax Digital – Have you chosen the ideal accounting software for your business?
What is making Tax Digital?
By now, most business owners will have heard of “Making Tax Digital”. This is a government scheme that is to revolutionise the way we report our taxes. Many will remember the first draft was an attempt to require sole traders, partnerships including land and property owners to report their profit figures on a quarterly basis. The last budget 2017/2018 announcement gave everyone a reprieve including the HMRC by postponing MTD until 2019.
This revised version of MTD is somewhat different to the original proposal. You may even have recently received letters from the HMRC explaining the revised version of MTD. If not, then here it is: If you are a VAT registered business (with an annual turnover in excess of £85,000), whether a sole trader, partnership or limited company then MTD affects you at the initial stage of the implementation in April 2019. All other businesses will be able to convert to this style of reporting; however, it is only compulsory for VAT registered businesses in the first instance.
At this early stage the only thing VAT registered businesses are being required to do is to submit VAT returns using the MTD portal rather than the VAT submission portal, using approved software. The change will mean that you will need to move to digital record keeping (i.e. use software to record all your VAT invoices and receipts). A list of such suppliers can be found at https://www.gov.uk/guidance/software-for-sending-income-tax-updates
If you are currently under the VAT threshold, you can volunteer to use MTD. It’s a great idea to prepare for the change as it will eventually be rolled out to everyone.
If you are not sure if you will go over the threshold by April 2019, you will need to keep track of your turnover over the last 12 months on a cumulative basis. If at any point your total turnover exceeds £85,000 you will need to register for VAT.
For more complex cases, HMRC have requested that those business owners should wait to move over to MTD until the compulsory date. This is still in the trial stages and the system may not be able to cope with the circumstances at this time.
Why do we need to change?
Looking to bridge the gap of £9billion estimated lost revenue due to tax and accounting errors, the government’s aim is “to transform the tax administration so that it is more effective and more efficient, easier for taxpayers to get their tax right.”
Recent times have seen a great shift in the SME world to become more proactive in measuring one’s profitability on a much more real-time basis. This may, in part, be because the software is now much more available, affordable, simple to use and intuitive to understand, thus requiring minimal training! Anyone serious about creating efficiencies as well as growth is already on board. We recommend that you also take your book-keeping to the cloud, if you haven’t already done so. And of course, as Silver partner’s we recommend Xero as an ideal option.
Back to MTD! If you are a client of ours and on Xero, then there is nothing you need to do other than register for MTD and if we do your VAT returns for you then even better… you have nothing to worry about as we will take care of it for you!
If you are not currently using online accounting software, or indeed using spreadsheets, it is advisable to seek help from an Accountant or Bookkeeper who will advise you on the best way forward. You are always welcome to speak with us!
Moving on from Nostalgia!
I remember the time when Excel spreadsheets were the new software (1985!) We are now at the next generation of software and it’s in the cloud so maybe it’s time to move from desktop spreadsheets to cloud accounting so that your figures are more accurate, and you can make good decisions based on good data. MTD is not just for the HMRC, it can also be advantageous for you!
In any event MTD is scheduled to be rolled out to all businesses in April 2020, which is not that far away. So be ready for the change. Starting early will help you to understand the workload involved and you will have plenty of time to decide if you need professional assistance.