Making Tax Digital (MTD) is the government’s plan to transform the tax system and move it online. The goal of the Government and HMRC is to make it easier for individuals and businesses to keep on top of their tax affairs. Every individual and small business will have access to their own secure digital tax account, similar to an online bank account that allows them to interact with HMRC digitally. One of the most significant steps as far as businesses are concerned is the introduction of MTD for VAT. From the 1st April 2019, all businesses will be required to keep their records digitally and use software to submit their VAT returns. (Other business taxes such as Corporation Tax have been placed on hold until April 2020).
Who will have to switch to MTD for Business?
Businesses, sole traders and limited companies, with turnover above the VAT threshold (£85,000 per year for the 2018/19 tax year), have until 1st April 2019 to comply with MTD. After this date, all VAT-registered businesses will need to store and submit their records digitally. This modern tax system will make it easier for businesses to get their tax right. Thanks to this digitalisation, HMRC will process information as close to real time as possible in order to interact with both individuals and companies, preventing errors. By 2020 customers will be able to see a comprehensive financial picture of their liabilities and entitlements in their digital account, just like they can with online banking.
How do I prepare for MTD?
The days of just using excel spreadsheets are over! Millions of businesses are already banking, paying bills, and interacting online. If you are using accounting software packages like Xero or Quickbooks, there is no cause for alarm. However, whether you already use these software or you are still looking for the one that’s right for you, don’t hesitate to ask the support of your accountant. As the old expression says, “Better safe than sorry!”
HMRC’s ambition is to become one of the most digitally advanced tax administrations in the world, modernising the tax system to make it more effective, more efficient and easier for customers to comply. Many people and business are concerned about the added complexity this all might introduce for their business, or the adverse impact on cash flow with tax payments. Many UK businesses already report VAT quarterly and pay it soon after filing. So, as long as you keep putting your invoices and expenses into accounting software packages, everything will be fine.
If you needed more information or to talk about any of our services, contact us here