Making Tax Digital (MTD) is the biggest change to tax compliance in a generation, although initially it applies only to VAT. For VAT quarter beginning 1 April onwards, VAT registered businesses with a turnover of more than £85,000 will have to keep digital records and send returns using MTD-compatible software. Businesses with a taxable turnover below the VAT threshold can also sign up for MTD for VAT voluntarily.
If your taxable turnover drops below the VAT registration threshold at any point after 1 April 2019 you are still required to keep digital records and send HMRC your VAT returns using MTD-compatible software.
Choosing the right software
All of the major software suppliers will have MTD-compliant packages available by April, but we would recommend using cloud-based products like Xero or Quickbooks Online, which allow your accountant to login and review your data before it is submitted to HMRC. We can advise you on moving your data online, and helping to ensure it is secure using two factor authentication. We can also provide training to you or your staff.
Using spreadsheets for your business records
Spreadsheets are still a cost-effective and convenient way of keeping business records for small businesses, and we understand that many of you don’t want to change. If that’s the case, you can still use spreadsheets to keep your VAT records, but you’ll need to upload them to MTD-compatible software so that you can send HMRC your VAT returns and receive information back from HMRC.
We have already filed MTD returns using our bridging software, and we can provide a cost-effective solution for clients who have used spreadsheets to maintain their business records for many years and don’t want the time-commitment of transferring their data to a new system and learning how to use it. Simply email us your VAT records each quarter, and we will file the returns for you.
Finding the positives
The timescale for MTD has been short. A recent Sunday Times article stated that just 4% of small businesses signed up to the MTD pilot scheme, enabling them to join MTD early. That’s just 20,000 businesses out of more than 1m which will be affected from April onwards. Coinciding as it does with the continuing uncertainty over Brexit, many will see MTD as an unwelcome drain on time and resources, but there are some positives.
A move to cloud-based accounting software, combined with closer involvement with a good accountant, will give your business the following advantages:
- An increased awareness of your tax position throughout the year, reducing year-end shocks and helping you to optimise cashflow.
- Real-time analysis reports, identifying the most profitable areas of your business, and those that need to change.
We can help your business to become more profitable by providing you with timely and relevant management information that identifies what you do well, and perhaps more importantly, areas you need to focus on to improve.
Signing up at the right time
It is important to sign up to MTD at the right time and this requires careful planning, as once you have registered HMRC will expect the next return to be filed under MTD even if it is for a period starting before 1 April. Businesses who pay by direct debit are facing a restricted timescale for registration, as it is not possible to opt in to the system within the 15 working days before the due date for the return.
The future of MTD
The Government have stated that they will not widen the scope of MTD beyond VAT before the system has been shown to work, but there is already legislation in place to extend the scheme to income tax. HMRC have stated that they will consult on MTD for corporation tax at some point in the future.
Importance of professional advice
MTD is a steep learning curve for everyone involved, not least because of the fast pace at which it has been developed and rolled out. We can advise you on every stage of the process and ensure that you remain compliant with the legislation.
Although many businesses will see it as an unwelcome extra burden in the short term, it is possible to gain performance benefits from upgrading your software and working more closely with your accountant. More insight into your business will help you to cut costs, identify new opportunities, and ultimately make more profit.
Please contact us for more details on how we can help.