Are you ready for making tax digital (MTD)?
MTD is a new government initiative being introduced from 01 April 2019. It is aimed at streamlining the tax returns and taxation process by making all taxpayers’ records digital and online.
HMRC is slowly moving to a system where taxpayers will not be able to file online accounts again. Instead, they will have to use software compatible with HMRC systems to upload their records, which will them be available to HMRC on a real-time basis. Thus, HMRC will calculate users’ tax over shorter time periods with less stress, rather than submitting one time-consuming and complicated return annually.
Who will this affect?
All businesses, including sole traders and limited companies whose turnover exceeds the VAT threshold of £85,000 will have to keep digital records for VAT filing from 01 April 2019. The system will not apply to other taxes until April 2020.
Existing VAT-registered businesses with a turnover of less than £85,000 do not have to comply with the MTD recording system. But businesses that are newly registering for VAT after 01 April 2019 will need extra help with their registration.
When using MTD, the taxpayer will continue to file as usual. But they must enter all the backup information and input VAT data into compatible software before filing the backup report to HMRC.
MTD is not about submitting a tax return. It’s about regularly updating your business’s digital personal account with information HMRC would request during a VAT filing period. Essentially, you are doing your bookkeeping online. Instead of submitting a VAT return, which HMRC may not enquire about, HMRC will use information and figures you supplied to them via third-party software to check your digital accounts.
Compliance
All businesses should ensure they review their systems and discuss with software providers to be prepared ahead of the introduction of the new accounts reporting system.
In particular, businesses above the VAT threshold need to make sure they are ready by the 6th April 2019 deadline. HMRC will impose penalties on those who do not comply. We expect the new system to apply across all businesses by 2020.
What you need to do
You will need to log in to your HMRC digital account. If you don’t already have one, don’t worry – everyone will be allocated an account through the current Government Gateway. You will then need to make sure your accounting software can update this account at least quarterly.
As your accounts consultant, we can give you advice on the software best suited to your situation and how to comply with the new quarterly reporting requirements. For most businesses, it will mean a move away from desktop applications onto Cloud-based accounting software.
You’ll be able to use digital Cloud software to maintain your business records and supply accounts information to HMRC. They will prompt you for summary updates on a quarterly basis. You will need to submit them within a month of quarter end. You should submit your end-of-year activity report within nine months of the end of the accounting year.
What’s next?
We will contact all our clients in 2018 to prepared you for Digital Tax and make sure you are ready in advance of the deadline. If you want to find out more about how this affects your business, feel free to contact us.
Do you have any questions about MTD?
This is an innovative system using new technologies and software that you may not be familiar with. We might also see some teething problems in the early stages of its introduction. If you have any concerns, or need help to get yourself set up for MTD, please contact us today via the contact page.
