3 Things You Should Know About Making Tax Digital
MTD stands for Making Tax Digital, the process of the HMRC (also known as the tax man) getting businesses to process their accounts )and in return their tax returns) in a digital format.
A VAT registered business (or their accountant) logs into the HMRC website, fills in the figures that they have from their accounting software (or their spreadsheet!) and it tells you how much VAT you have to pay. Well from April 2019, all VAT registered businesses that are over the VAT threshold (£85,000 for the current and next tax year at time of writing) will no longer be able to log in and do this. They will have to use software to submit it. Most cloud accounting software is currently in the process of getting ready for this, and some (including Quickbooks UK) are already part of this trial. When the figures are produced as part of your VAT report on Quickbooks, at a touch of a button you can submit them to HMRC.
Obviously this could cause concern that businesses may decide to do this themselves and submit information that is wrong, which is why I would always suggest consulting with a qualified professional for VAT matters.
1. Many Business Owners Are Unaware About Making Tax Digital for VAT
Depending on who you ask, the amount of business owners that have not heard about Making Tax Digital varies between 20% and 40%. So, if you are reading this you can take yourself out of the ‘uninformed’ group. Many businesses already use the services of a finance professional such as an Accountant or a Bookkeeper. However these figures surely indicate that some of them aren’t informing their customers about this very significant change. Given that we are now less than a year away, this needs to change, and fast.
All of our existing clients were told with over a year to go. Any new business owners that I talk to get told about it whilst we are chatting. We are also planning on running some workshops for Making Tax Digital for VAT in the Autumn of 2018. This is so that business owners know what will be expected. The workshops will cover what is changing, why and how.
2. Digital VAT Will Be Piloted And Tested Fully Before Roll Out
The VAT Pilot for Making Tax Digital (MTD) is now in full swing. Many small and medium businesses are already submitting their VAT returns this way. Through software such as Quickbooks and Xero they are submitting their figures derived from the sales and purchases of the business. These providers have developed integrations in their software with the HMRC portal. This is totally different to a lot of other HMRC system roll outs of the past. Previously they have been lengthy, expensive and frustrating for businesses. For those businesses in poor bandwidth areas, HMRC have an answer. Thave stated that only 2MB is required to be able to use the system. The Government is also investing additional funds in improving access to fibre broadband across the country. This can only be a good thing for businesses if they are getting this investment from the government.
3. It May Be Easier Than You Think To Submit Your VAT Return
If you are already using a cloud based (ie. online) accounting system, you are in luck. These systems will already be ready, or will be before the VAT MTD deadline of 1st April 2019. This includes QuickBooks Online, Xero, Sage Accounts/Financials and Kashflow. You or your agent may already be submitting your VAT returns from the software each quarter. The software provider will provide any necessary updates or patches to the systems if they are required to be fully MTD compliant. If you are using a desktop-based software the likelihood is that you will need to move away from this. This is especially the case if it is a version that is more than a year old.
If you would like more information about your current software and whether it will be compatible, you can speak to us free of charge. There are multiple options available to suit your business and we can help you to decide on the best fit for your business. Even if you want to keep doing your books yourself, we can help you get set up with both your software and your new online account.
In summary, with less than 9 months to go it is something we need to be thinking about now. Not something to be thinking about later. This is why we are running free workshops on the subject from the Autumn. We also have put a full 10 point guide in our free e-book on the website here.