HMRC aims to reduce the amount of time and money they spend on collecting tax by launching Making Tax Digital (MTD) on 1st April 2019.
Businesses will also benefit in the long-term from the implementation of this new digitalised process as it will reduce time spent undertaking accounting admin tasks and will help to reduce accounting errors.
MTD only affects VAT registered businesses above the VAT Threshold (£85,000 turnover). Businesses who are not VAT registered, or who are under the VAT threshold can continue to submit their accounts through self-assessment, however, you can still voluntarily join MTD if you wish.
In the next five years, the entire tax system will be digitalised, so even if you are not eligible now, you will likely be in time, so it is key to understand what solution will work for you so you can start planning and making the necessary changes to your accounting system whilst you have lots of time to make decisions.
MTD starts on 1st April 2019 for VAT, and Income Tax and Corporation Tax will follow. You will need to send your VAT Returns digitally and maintain your records digitally so they can be sent directly to HMRC. You will need to record the date, net value and VAT rate applied. You won’t need to keep invoices, but you will need to keep business records, either paper or digitally.
A business will need Functional Compatible Software to facilitate the data transfer of accounts to HMRC.
If you need to invest in new software that is compatible with the HMRC system, it is recommended that you get to grips with using it before 1st April 2019 so you know how it works and what data is required. There are a number of software solutions on the market, cloud solutions as well as desktop solutions.
If you currently use accounting software or need to purchase some, you can check accounting software for compatibility with MTD at the HMRC website https://www.gov.uk/guidance/software-for-sending-income-tax-updates#VAT.
If you currently use Excel, you can submit your VAT return via Excel by using a ‘bridging system’ which will send the data directly to HMRC, so avoiding the need to re-key data. Excel will help with MTD initially, however, this option will only be available until March 2020 as part of the soft transition agreement, so it is only a temporary solution. You will need to invest in Functional Compatible Software by March 2020.
There are a lot of MTD resources, training, toolkits and webinars available online. Sage, a leading accountancy software, offers a good deal of information on MTD for existing Sage customers and new customers who may be interested in using Sage Accountancy products for compliance with MTD. Find out more at https://www.sage.com/en-gb/sage-business-cloud/accounting/
The FSB also have resources available to members such as Digital Downloads offering a Quick Start Guide, and Webinars and Digital Seminars to help you gain a better understanding of the system and what is required. If you are a member, login to view the Making Tax Digital Campaign to access the member resources. If you are not a member, then visit https://www.fsb.org.uk – the organisation provides a great resource for small businesses, and I have personally found the website especially useful on both GDPR compliance & MTD.
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