Making Tax Digital (MTD) for VAT-registered businesses comes into effect from April. As businesses get ready, Steven Todd, Partner at EQ Accountants, explains what it’s all about.
Making Tax Digital (MTD) will be at the forefront of the minds of business owners and advisers over the next few months but what is it all about?
MTD is the idea that all business transactions will flow seamlessly to HMRC by electronic means at the press of a button. Enabling HMRC to estimate a business’ tax liabilities throughout the year instead of many months after the end of the tax year or business financial year.
WHEN DOES IT START?
MTD is kicking off with one tax only, VAT. A VAT registered business with turnover exceeding £85,000 per year will have to meet the requirements of MTD when submitting its first VAT return covering the period from 1st April 2019. Some businesses such as charities, VAT groups and public sector entities have been deferred until 1st October 2019 to enable some of the complexities to be ironed out. Other taxes will not be included until 2020 at the earliest.
WHAT ARE THE REQUIREMENTS?
MTD means accounting records must be kept in a digital format. This means using dedicated accounting software such as Sage, Xero, Quickbooks or even an Excel spreadsheet to record transactions, just not a manual cash book. The software must be compatible with HMRC’s system to enable it to transfer the VAT information electronically. If using a spreadsheet some ‘bridging’ software may be needed to make that electronic link.
WHAT DO I NEED TO DO NOW?
Businesses need to ensure that existing accounting software is compliant with MTD or will be by 1st April. If software isn’t currently used then businesses may wish to consider doing so. Speak to an accountant who can recommend the best option for individual businesses or alternatively prepare accounting records and make the MTD submissions for a business.
Businesses can sign up for MTD now by joining the pilot. EQ Accountants has successfully submitted a number of VAT returns on behalf of clients using a variety of MTD ready software.
HOW WILL IT BENEFIT MY BUSINESS?
From a VAT compliance perspective there is no real benefit of MTD. However, improving technology offers so many opportunities to work more efficiently and collaboratively and at the same time cuts down the paper trail. Accurate and up to date record keeping allows real time management of a business’ finances and tax planning. MTD may be criticised for being mandatory but it will move businesses forward to where we might have voluntarily chosen to go soon enough.