What is Making Tax Digital?
Making Tax Digital (MTD) is part of the government’s plan to make it easier for businesses to stay on top of their day-to-day accounts. HMRC wants to be one of the most digitally advanced tax administrations in the world – improving efficiency, effectiveness and ease of compliance. The plans signal the end of paper accounting for millions across Britain.
This new legislation will require businesses above the VAT threshold to set up a digital tax account and file quarterly returns online. Preparation starts now, with businesses and accountants moving online to improve efficiency, boost profitability and make the transition painless.
What do I need to do to get ready for MTD?
If you’re going to be digital ready by 2019 (the initial deadline for VAT-registered businesses with turnover above the threshold), here’s what you need to do now:
- Move to cloud accounting software
We can highly recommend Xero. It is what we use in our own business and what most of our clients also use. Not only will it save you huge amounts of time and allow you to manage your finances from anywhere, but switching to Xero will mean you are compatible with HMRC’s digital systems. So when the time comes you’ll save yourself a massive headache.
- Find an accountant who understands digital
As with all new government policies MTD is difficult to get your head around and it’s important that you, or whoever is managing your finances fully understands what is required and when. If you don’t have one already then find an accountant who is tech-savy and has embraced cloud-accounting.
- Streamline your bookkeeping
Another great benefit to using cloud accounting software Xero is the huge array of apps that plug into it. We use Datamolino to store all of our receipts and documents in the cloud so no more unruly stashes of receipts. Simply download the app onto your phone, take a pic of your receipt and it’s all done for you!
- Keep a regular eye on your tax
Instead of waiting until year-end to think about tax, have regular monthly conversations with your accountant about your tax position, what’s owed and where there’s potential to claim reliefs to save money. A good accountant will be proactive and schedule these monthly conversations with you.
What are the timescales for the MTD roll-out?
Here is the latest timescale:
April 2018 – VAT pilot – small scale pilot of digital only VAT returns
April 2019 – Quarterly VAT – For VAT-registered businesses with turnover above the VAT threshold, it will be mandatory to pay digital-only VAT returns each quarter through their digital account
April 2020 – Corporation and income tax – Sole traders and partnerships with income between 10k and 83k p/a to pay their corporation and income tax through their digital account.
For any help and advice with Making Tax Digital please don’t hesitate to contact us.