You may well need to prepare your business for this fundamental HMRC change to the tax system.
Making Tax Digital (MTD) is the most fundamental change to the administration of the tax system for at least 20 years, with the aim of building a world class digital tax system. The majority of businesses (including landlords) will be required to keep their accounting records digitally rather than on paper and will need to submit digital updates of their accounting records to HMRC every quarter. Over the next few years, we believe that all but the smallest of businesses will be required to follow the new rules. This is a good opportunity to look at how technology can help you to administer your business and we are here to help you as much as you need to get you through this change.
The first of these changes is MTD for VAT which took effect from April 2019. All VAT-registered businesses whose VAT taxable turnover is above the VAT registration limit of £85k have to keep digital records and submit their VAT return from MTD compatible software. A small number of VAT registered businesses are deferred until 1 October 2019. These include annual accounting scheme users, trusts, not-for-profit organisations who are not companies, and VAT groups.
Under MTD for VAT you will not be allowed to manually type-in your VAT return figures into the HMRC Online system. The returns must also be submitted through HMRC’s new MTD gateway/ portal. The data submitted with the MTD VAT return is still only the nine figures of the current VAT return, the MTD submission does not submit the underlying transactions.
For those businesses, all VAT periods starting on or after 1 April 2019 must be compliant with MTD for VAT. Therefore the first quarterly VAT return under MTD is the 1 April to 30 June 2019 VAT return that must be submitted by 7 August.
The next stage of MTD is expected to be MTD for income tax which may include businesses, landlords and trusts with income over £10,000 – if HMRC keep with the threshold included in the initial consultation in 2016. The Government has yet to announce commencement dates, but in their March 2019 Spring Statement said that it will not be mandatory before April 2021, and not until the MTD for VAT system has been shown to work. It should be noted that the MTD for income tax pilot has been running since April 2017, before the MTD for VAT pilot which started in April 2018.
We have teamed up with Sage to provide an effective and low cost solution to MTD. Sage Business Cloud Accounting software is designed to be easy to use and can incorporate automatic feeds from your bank account to make your book-keeping efficient. We have supported our clients through the change to Sage Business Cloud, and most have found it straight-forward to make the switch.
There are advantages to cloud accounting software. Importing transactions directly from your bank account means that it is efficient and leads to fewer mistakes, as it removes the need for typing individual transactions into the system and reduces the risk of missing transactions. It also means that you and your accountant will have better access to the data and be able to look at up-to-date information.
Whilst spreadsheets can be used to record the transactions digitally, bridging software is required to submit the relevant figures from the spreadsheet to HMRC. Whilst this route could be a good solution on a temporary basis, we believe that as a long term solution the efficiency advantages of basic accounting software far outweigh the complexities of bridging software, particularly when MTD for income tax is introduced. We therefore do not believe that spreadsheets are a viable long term solution.
We have already run a number of successful seminars covering MTD and giving a demonstration of the Sage Business Cloud Accounting software. If you would like to attend a future seminar please use the Contact Us section on the website or call our office on 01434 606624.