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? how will it affect you? what do you need to do and by when?
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 VAT registered business over the VAT threshold (currently £85,000), for VAT periods beginning on or after 1st April 2019. That’s in just over a month!
Then, in April 2020 the second phase of Making Tax Digital is scheduled to 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?
All businesses will be affected, just at different times. Businesses falling into the Making Tax Digital for VAT scheme will need to be compliant by 1st April 2019, and that means the following:
* Keep business records digitally;
* Send VAT returns using Making Tax Digital compatible software – such as Xero Gov.uk have detailed guidance on what this means, so dip into the link here for more information. This will need to be sorted by the beginning of April 2019. If you need help – give us a call 01326 660022.
If you’re a client of ours on Xero – you’re ready to rock and roll! If we do your bookkeeping and prepare your VAT returns, then sit back and relax. If you do it yourself, then there will be a couple of additional steps required to link Xero to HMRC. We will be in contact with some guidance on how to do this once it has been finalised, so watch this space.
If you’re not on Xero or other Making Tax Digital compatible software – you need to get your skates on! Give us a call and we can help you get prepared.
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 criteria;
- 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?
Get in touch!
Give us a call, drop us a line or drop by to say hello. Although we’re getting close, there’s still time to get your MTD ducks in line.