Making Tax Digital? What is it?
By now, you’ve likely heard some buzz about Making Tax Digital (MTD). Although 1 in 4 businesses worryingly still do not know about Making Tax Digital. 1.2 million VAT-registered businesses must comply with Making Tax Digital for VAT by 1 April 2019. Therefore if you are a UK VAT registered business at this time, you will be required to submit VAT returns (including workings) to Her Majesty’s Revenue & Customs (HMRC) digitally from 1 April 2019. This will effectively mean the end of paper ledgers. In 2018 1 in 5 businesses are still thought to be using paper ledgers for record keeping.
Reason for Making Tax Digital
MTD is a key part of the government’s plans to make it simpler for individuals and businesses to get their tax affairs right, and will in time mean the end of the annual tax returns. One of the main advantages of Making Tax Digital for businesses is that it will lessen the chaos surrounding the annual tax returns. You’ll submit tax data every three months, which means you can forget about cramming twelve months of work in at the end of your financial year.
Computer software such as Xero will make an automatic record of money coming into and going out of your business. You (or your advisor) will just check the data and update it to HMRC each quarter. Because your tax will be calculated quarterly, there is far less chance of a large, unexpected bill due to HMRC. You’ll find out what your tax liability is every few months so nothing gets out of hand.
Where Does This Leave You?
If your business uses cloud accounting software such as Xero, to manage your business accounts. Then this will work perfectly for MTD. In fact, all major accounting software such as Xero, Sage and Quickbooks will be suitable for Making Tax Digital. At Accounting Inc. we recommend Xero. Why? Being a cloud platform this means Xero can easily integrate with other online software programmes, such as HMRC’s MTD system.
If you currently use cloud accounting software such as Xero to manage your business finances, then you are in good hands. If your business uses paper ledgers such as a manual cashbook, or perhaps spreadsheets, then you may have some work to do. There are certain spreadsheets which can support digital submissions to HMRC, and comply with MTD. However, you should speak to your advisor about preparing for MTD. I would be concerned if your accountant has not discussed Making Tax Digital with you by now, and how MTD might affect your business. At Accounting Inc. we are Xero experts and have a wealth of knowledge regarding Making Tax Digital. If you would like to discuss how Making Tax Digital will affect your business, and how Accounting Inc. can help you prepare for MTD, then feel free to contact us for a free, informal consultation. We are here to help.