The deadline of 1st April 2019 is rapidly approaching. How should business owners be feeling about Making Tax Digital (MTD)? Is it something to fear? Something to lose sleep over? Or are there positives to be embraced as we move towards this new era of online business taxation.
MTD is the biggest change to the UK taxation system for many years. The aim is to provide businesses with a more effective, efficient system which is easier to use and provides information in real time, allowing for more accurate decision making. By 2020 a fully digital system will be in use for all tax payers. It will mean that tax can be paid at any time of the day or night and at any point in the year. This is the vision for a modern tax system which should be accessible to all.
In a nut shell, it changes how businesses pay their taxes to HMRC.
MTD begins this April for businesses who are registered for VAT and have a turnover of more than £85,000. It remains voluntary for businesses who are under the VAT threshold until 2020 at the earliest.
The four key provisions of MTD have been set out by HMRC:
- Information holding – tax payers will only need to provide HMRC with the information it really needs which it cannot obtain from other sources. Digital records can be viewed at any time by the tax payer and reviewed for accuracy. This online holding of information will ensure that each tax payer receives an individually tailored service.
- Real time – calculations of tax will be done in real time. This will mean errors can be reduced and tax payers are more informed of their tax position, both in terms of current tax payable or any entitlements. This should reduce the building up of tax due or repayments owed.
- Single account – never before has it been possible to view all your tax liabilities and entitlements in one place. This is a new provision and should provide customers with a comprehensive picture of their business position.
- Digital interaction with HMRC – via the customer’s own digital account; interaction with HMRC will be possible at a time of day to suit the individual.
So what preparations are required?
The key preparation is to move record keeping on to a digital system that is compatible with the upload required by HMRC. Information will be required by HMRC four times a year via your digital account. This is like accessing your bank account online.
The software you choose to use must enable two-way communication. Manual processes and spreadsheet record keeping will need to be moved across to a digital way of working. Advice is available from HMRC as to which approved software supplier would suit your business needs. You will need to review current processes and train staff to use the new software.
This might seem like an onerous task, but the benefits of moving over to a digital system will be a far greater understanding of your business position including what entitlements and liabilities you have. These changes should mean less paperwork, a clearer view of your tax liability and, potentially through greater organisation, an opportunity to lower your tax bill.
Should you wish to continue to use spreadsheets then bridging software will enable you to upload your VAT calculations to HMRC.
By being organised with your preparation and processes a lot of time can be saved at the end of the year gathering information and sorting records. By having all your information in one place you will be able to better plan for your tax bill and monitor cash flow. The key is to be set up in the right way from the outset.
Green & Co are happy to offer advice and support to any business unsure of how it should plan for MTD. We have the expert knowledge and software links to enable you to make a smooth transition to this new system of online record keeping.
Green & Co recommend using Xero and are Xero Gold partners, which allows clients to access support every step of the way. Speak to one of our staff today.
Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.