Everything you need to know about Making Tax Digital
Making Tax Digital (MTD) is quite literally just around the corner. With this in mind, businesses need to be thinking about what they should be doing to prepare – and consider the benefits of switching to a cloud accounting solution ahead of time.
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At first glance, this might seem like a big change, but our cloud software accountants are on hand to make your transition to
cloud accounting as smooth as possible.
Warning over sign-up timing
Deciding when to sign up for Making Tax Digital could have a significant effect on your future reporting and recordkeeping requirements.
If you sign up too early then you could join the Making Tax Digital pilot, which will require you to fully comply with all Making Tax Digital recordkeeping requirements with immediate effect or your returns submitted in the old (non-MTD) format may not be processed.
To avoid running into either of these issues it is recommended that you do not sign up until the last non-MTD return has been submitted.
Making Tax Digital for VAT
Next year will see a significant change to the way VAT returns are submitted to HM Revenue & Customs (HMRC) by businesses with annual revenues of £85,000 or more.
From April 2019, businesses will need to submit VAT returns on a quarterly basis using HMRC approved filing software. This is the first stage in the implementation of MTD, which is intended to take the filing of most taxes online in the coming years.
The rules and requirements of submission
Under MTD for VAT, businesses will need to:
• Digitally store and maintain VAT records
• Keep these records for at least six years
• Submit summary totals of their digital records to HMRC at least once every three months.
This will be achieved using MTD-friendly software – i.e. appropriate software that has been approved by HMRC.
Digital record-keeping explained
Businesses will need to use ‘functional compatible software’ to store their tax and financial information digitally.
In short, this means using software which has been pre-approved by HMRC and can connect to the tax authority’s systems using an Application Programming Interface (API).
HMRC has said that businesses can use either a single application or multiple programs for MTD, but any businesses using more than one program need to ensure the applications are ‘digitally linked’.
The software businesses use must be able to:
• Store records digitally
• Provide HMRC with VAT data automatically
• Enable the user to create and submit VAT returns
• Automatically update with information held by HMRC about the business.
Making Tax Digital for other taxes
Outside of MTD for VAT, HMRC intends to roll out MTD for other taxes and types of businesses however, this is expected to be from April 2020 at the earliest.
At this point, HMRC expects that “most businesses will be keeping track of their tax affairs and updating HMRC quarterly,” it has said.
If you need help with preparing for MTD, look no further…
Cloud accounting – the best way to prepare for MTD
At Kirk Newsholme, our accountants are experienced in many cloud accounting software solutions and already support clients who use Sage, Xero, FreeAgent and QuickBooks – and we want to help you too.
Cloud accounting packages can ‘future-proof’ your business in readiness for the changing face of Making Tax Digital. Cloud accountancy packages also enable you to share financial information in real time with our team and quickly produce bills and invoices.
Kirk Newsholme Solution
We understand that not everyone may be in a position to make the transition to a Cloud based solution in time for the April 2019 deadline.
At Kirk Newsholme, we can help you bridge the gap by offering a temporary solution until you are ready to go digital. Using our in-house HMRC compatible software we can submit your VAT Return to HMRC on your behalf.
Making Tax Digital – Next Steps
Making Tax Digital (MTD) for VAT was launched in April 2019. Hundreds of thousands of VAT-registered businesses above the VAT threshold (£85,000) are now recording and reporting their affairs digitally to HM Revenue & Customs (HMRC).
The rollout of MTD for VAT will now continue with the first reporting dates beginning in July 2019 and then continuing quarterly depending on each business’s required reporting dates.
Those with more complex VAT affairs have an extension until October 2019, by which point all VAT-registered businesses will need to comply. This may include public sector bodies and some charities.
Businesses are currently benefitting from a ‘soft landing period’, which will last up to a year, to get MTD for VAT in place and be reporting their affairs accurately to HMRC without facing a penalty.