'Making Tax Digital' Simple
As HMRC have recently released further information about the ‘Making Tax Digital’ initiative, we thought that it would be a good idea to clarify a few of the key points. Especially, as a recent poll by the British Chamber of Commerce (Full article here) suggested that 24% of firms have never heard of Making Tax Digital. If you are a business that is VAT registered with a taxable turnover of £85,000, it is important that you read on.
What is ‘Making Tax Digital’?
Making Tax Digital (MTD) is HMRC’s new strategy to create a more efficient and effective tax administration system. HMRC say that it will make the process of submitting VAT and Income Tax easier for everyone involved and will also mean fewer mistakes are made.
What is going to happen?
From 1st April 2019, all VAT registered businesses with a taxable turnover above the VAT threshold (£85,000) will need to keep digital VAT records and submit them to HMRC using MTD-compatible software.
This means that any business or landlord who join MTD must keep their records digitally and send their tax information directly to HMRC from those same records.
Which businesses will be affected?
It will be compulsory for all VAT registered businesses with a taxable turnover above the VAT threshold of £85,000 to comply with the new legislation. However, HMRC are encouraging smaller businesses to voluntarily join.
Will it change the way my business works?
For VAT returns, HMRC are asking that eligible businesses submit their VAT returns digitally through compatible software but nothing else about the VAT return process will change, including monthly, quarterly and annual deadlines.
It may be that your business does not already keep records digitally. Digitally means, in plainest terms, on a computer. Making Tax Digital will mean that you will need to start recording your financial records on a software application such as Xero, on a computer.
Will HMRC provide any software?
HMRC is currently developing a digital tool that will act as a ‘bridge’ between record-keeping software and HMRC but it will not create any original software for businesses to use directly.
Can I do it myself?
Yes, absolutely. All that is needed is the correct software to be able to submit your records. However, most accounting software is not free. It may be that you must purchase the appropriate software if you do not already use a package or currently use one that can’t be made compatible through upgrades. It will also mean that you must record your financial data digitally throughout the year rather than on a spreadsheet or in a manual form.
Can my accountant do it for me?
Yes, absolutely. If you currently give us, as your accountants, your VAT records to process and file, you can continue to do so. This will eliminate any concerns that you may have about adjusting to the new system.
What are the benefits?
If you are only using one software package to record and submit your financial data, then it is a much simpler process than having to transfer your information on to the HMRC tool from your records and then submit. HMRC hope that this will cut down on transpositions and allow them to make accurate and reliable tax calculations.
You will be able to view an estimate of the tax you might owe based on the information that you provide and if you would like to access more up-to-date estimates that you can send updates to HMRC more often. It will also mean that you can pay your bill as you go if you think that might help manage your budget.
Will this cost my business any more money?
If you do want to do it yourself, it may be that you just need to make a one-time purchase of software that will allow you to record and submit your financial data.
If we currently process your VAT for you, there may be additional costs. We are working to make sure that we keep any additional costs to a minimum but please get in touch to discuss the options that are available to you.
What’s the most important thing to know about Making Tax Digital right now?
For changes being made to VAT returns, the most important thing to know is that for most businesses, MTD isn’t going to make a huge difference to their day to day working lives. The businesses that will see the most change are those that don’t currently record their financial data digitally.
The information used in this post was taken from Making Tax Digital for Business -Stakeholder communications pack – read the full pack here. Information up to date as of 18th October 2018.
To receive further information or advice about your business, please contact us. We will be happy to talk you about your individual needs.