You may have heard the term ‘Making Tax Digital’ being thrown about recently. Perhaps from your accountant, or online. But what does it actually mean? and how will it affect you?
Well, we’re all clued up on the subject (we have a badge and everything), and we can help.
What is Making Tax Digital?
Making Tax Digital is a regulatory change initiated by HMRC to reform the UK tax system. HMRC’s ambition is to have the most digitally advanced tax administration system in the world.
This means modernising the tax system from its current state, to make it more efficient, more effective, and easier for people to use. At the moment, only 12% of VAT returns are submitted via digital software – so it’s fair to say there’s a lot of work to be done.
The idea is, that if businesses keep digital records of all their business transactions, and send them to HMRC using Making Tax Digital compliant software, it makes it easier for businesses to 1) get their tax right, and 2) it helps HMRC to deliver a more efficient and simpler system.
HMRC have released data showing 5.7% of tax liabilities were unpaid in 2016 – 2017. This is known as ‘The Tax Gap’ and it equated to 11.7 billion pounds in unpaid tax. Gosh.
When is Making Tax Digital Happening?
Making Tax Digital for VAT comes into play for any business over the VAT threshold (currently £85,000), in April 2019.
Then, in April 2020 the second phase of Making Tax Digital will be implemented, meaning that corporation tax and income tax records will have to be kept digitally. Paper records will no longer meet the requirements of tax legislation.
Will Making Tax Digital Affect me?
If you’re a VAT registered business with a taxable turnover of over £85,000, and you’re not currently using online accounting software that is compliant with Making Tax Digital legislation, you will need to be able to:
- Keep and preserve records digitally
- Have the ability to submit VAT returns to HMRC using Making Tax Digital compatible software, such as Xero.
- Get this sorted by April, which is not too long away. If you need help – give us a call 01326 660022.
If you’re a client of ours on Xero – you’re already compliant. So you can sit back and relax!
I keep my accounting records on a spreadsheet, am I compliant for Making Tax Digital?
Well, yes and no. You could record your transactions in a spreadsheet but it would need to be either API enabled or used with a Making Tax Digital compatible software product so that data can be successfully sent to HMRC systems. So, using a spreadsheet alone will not be compliant with the Making Tax Digital requirements.
As with anything, there are exceptions and you will not be asked to comply with Making Tax Digital rules if you fall under any of the following cirteria;
- Religious reasons preventing the use of technology
- If an entity is subject to an insolvency process
- If it’s not practical, i.e: age, disability, remoteness of location.
But, you can still opt to comply with the rules by notifying HMRC.
How can I find out more?
We’re running a series of breakfast events dedicated to Making Tax
Delicious Digital. Click here book your place.
If you have any questions at all, about Making Tax Digital or Xero – then please don’t hesitate to give us a call.