Making Tax Digital (MTD) is one of the biggest changes we’ve seen in the accounting world for some time. Unlike the majority of changes from HMRC each year, this directly impacts on the day-to-day running of businesses in the UK. The affect it’s having (and will continue to have) is huge.
The move to digitise the tax system is one that most people agree is a good one, and in line with the way that the business world is heading.
MTD is coming… but so many still don’t know what it is!
In a recent survey by the Chamber of Commerce it became apparent that 1 in 5 VAT-registered businesses (those who will have to comply with MTD come April 2019) don’t know anything about the new changes to digital tax records, and that they’ll soon need to submit their returns online.
Speaking about the findings, Suren Thiru, Head of Economics at the British Chambers of Commerce, shared his concerns at the timing of this ‘overhaul’ of the tax system during the Brexit uncertainty and said that giving businesses an ‘added cost and administrative burden’ was a worry.
“The idea to modernise the UK’s tax system is a good one, but the timing couldn’t be much worse. In the current environment, the introduction of Making Tax Digital is an added cost and administrative burden and there still isn’t adequate understanding or preparation among businesses to make its rollout a success right now.” Suren Thiru.
Is there ever a good time to do anything? Who knows, but here’s what you need to know about MTD.
If you’re running a VAT registered business (with a turnover of £85,000 or over) then MTD is compulsory for you (with a few exceptions) from April 1st.
Who needs to prepare for MTD?
From the start of their first VAT return period on or after 1st April 2019, VAT-registered businesses (with a turnover above the VAT registration threshold of £85,000) will need to comply with the new digital record-keeping and reporting requirements of MTD for VAT.
Once in the scheme, a business must remain in it while they are VAT-registered, even if their turnover falls below the VAT-registration threshold.
What do you need to do?
There are a few areas that a VAT-registered business needs to focus on and get ready for, and these include:
Under the MTD regulations, certain records must be kept digitally with compatible software.
These need to be kept on digital record for up to six years.
These records include:
- Designatory data – It’s compulsory for you to keep a digital record of your business’ name and address which is the principal place of business. (This includes your VAT number.)
- Supplies made – For each supply made by your business, you must record the time it was supplied, how much it was worth at the time, and the rate of VAT charged.
- Supplies received – For each supply your business receives, you need to record the time of supply, the value of supply (including any VAT that cannot be reclaimed), and the amount of input tax to be claimed.
The VAT Account
The big change is the submission of VAT and this is what most businesses are focusing on.
Submitting your VAT through the HMRC portal will never be the same again!
When MTD for VAT comes in next month, the information which must be held in the VAT account must be maintained digitally, and this is referred to as the ‘electronic account’.
The business must then have compatible software to submit their VAT return. You can find a list of all the compatible (and quite affordable) software options on the HMRC’s website here: Making Tax Digital – Software Options.
How will you become digital for MTD?
If you’re currently using an accounts package like Xero or Quickbooks then the chances are you’re already there, or very nearly there. Nearly all the main cloud accounting packages are now compliant and ready for MTD. You’ll just need to check that you’re hooked up to the new HMRC portal which has been in testing and running for over a year now.
Thankfully, many VAT-registered businesses have been ticking the box of MTD for some time now.
If you’re still working on spreadsheets and ledgers, then you can even work with a compliant version of your current system with a compliant spreadsheet.
Or you can, of course, move with the times and get your accounts into a package like any of the recommended platforms listed on the HMRC website.
We understand the perceived pain (and cost) of moving your accounts online. It’s always tricky to navigate new laws and guidelines, and you probably think you’d rather do something else with your valuable time. But there are other advantages to having your accounts online such as simple reporting, and being able to plan and budget more efficiently. We think it’s worth investing a little time and effort now.
There will, of course, be a few teething pains for HMRC no doubt too, and many remain apprehensive of the switch over.
However, if you’re VAT-registered, or about to go over the £85,000 threshold, then you have to prepare now.
Need help with Making Tax Digital?
Contact us now and we’ll help you get online and become compliant ahead of the deadline. If your next VAT return is in a few months then don’t panic, you have a little bit of time to get it all set up.