Are you Ready for Making Tax Digital?

What Is Making Tax Digital (MTD)?

MTD is a key component of HMRC’s plan to become a world-leading digital tax authority.

It encompasses the self-employed and landlords who pay income tax on their profits, entities who are registered for VAT and companies who pay corporation tax on their trading profits.

Making Tax Digital (MTD) for VAT finally comes into effect from April 2019, but only for certain businesses.

The April 2019 launch will only apply to VAT registered traders who have a turnover above the VAT threshold (currently £85,000) – the smallest businesses will not be required to use the system, although they can choose to do so voluntarily.

While it may not be compulsory, businesses with a turnover below the current threshold may also opt to file their VAT returns through MTD if they please.

Overall, the hypothesis is that improving access to data will speed up the returns system, allowing HMRC to process VAT refunds and deal with other queries faster and more efficiently

The big question for most businesses and accountants is a simple one – will we be ready?

How do I get ready for MTD?

MTD is a prime opportunity for small business owners to harness the power of cloud technology

Moving your business to a cloud-based business system is particularly relevant in relation to your accounting packages. With a cloud accounting software platform in place, your accounts, key tax numbers and documentation are already safely stored online in a digital format – and that makes life considerably easier when it comes to submitting a digital return and linking your financial systems to HMRC’s online system.

With cloud accounting at the core of your business system:

• Your invoices can be generated via the cloud system, or scanned in, along with other receipts
• Your financial data is pulled into your cloud accounting package and coded to the right accounts
• The tax information needed by HMRC is pulled into a pre-defined template, with the data sourced directly from your cloud accounts.
• This digital tax return then submits all the required data and documentation straight to HMRC through their online portal.

With a cloud system in place, there will be no searching for missing paper receipts, and no panic to locate the right documents or get your accounts and tax information into the right format.

The whole process should be seamless, fast and totally efficient.

Do we have the full picture?

Businesses who fall within the MTD spectrum must use, according to HMRC, "functional compatible software" to meet the new requirements. This software will allow the organisation to maintain digital business records and files relevant VAT information electronically.

At this stage we still don’t have the final picture of how a digital tax system will work. It’s likely that an API (application programming interface) will be released that allows the various different cloud accounting providers to integrate their solutions directly with HMRC’s digital system – but there’s still plenty of smoke and mirrors around the detail of how this will work.

As many businesses will wait for full clarity from HMRC on what falls into the category of "functional compatible software" it appears that many companies will only have a short window to ensure that they are compliant with the new rules.

The hope is that when the final regulations are published that this, and many other key questions, will be answered.

We can help you make the switch!

There had been hope that enough pressure would be exerted on HMRC to delay the introduction of the new digital tax scheme, but this has not been the case

April 2019 will signal the introduction of MTD for VAT which is now less than 12 months away - it’s amazing how quickly time passes when you’re busy running a business!

It’s imperative that thought is given to how the introduction of these new rules will affect you. Planning ahead and upgrading your accounting system will make your business life considerably easier.

At bdhc we’ve been involved with cloud accounting software for several years, using a number of different packages. We’ve got the experience and knowledge to help you review your existing accounting processes and move them over to a cloud-based system – with all the advantages for meeting the Making Tax Digital cut-off date.

Change is never easy, but the time to initiate these conversations is now.

If you are registered for VAT, have annual turnover above the current £85,000 limit, and have not yet considered how you are going to cope with Making Tax Digital for VAT, please contact us so that we can help you research your options.