Making Tax Digital Explained – Everything You Need to Know
The first wave of Making Tax Digital kicks in April 2019. If you aren’t already in the cloud, Making Tax Digital can seem daunting. However, it doesn’t have to be. So we’ve compiled a list of the most commonly asked questions surrounding MTD, in order to debunk any myths you may have heard, so you can finally have clarity on what Making Tax Digital is and what you need to do going forward.
What is Making Tax Digital for VAT?
UK businesses must change how they prepare and file VAT returns.
Making Tax Digital (MTD) is a UK government initiative designed to make the UK tax system more effective, efficient, and easier for taxpayers through the implementation of a fully digitalized tax system by 2020.
From April 2019, if you are VAT registered with £85k+ of vatable sales, you must be MTD compliant. You will be required to keep digital records and submit VAT returns quarterly using compatible accounting software.
HMRC’s online VAT portal will close from April 2019. This means VAT returns must be submitted to HMRC through an MTD compliant software such as Xero, Quickbooks or FreeAgent. Digital records must be kept in order to submit VAT transactions and returns using a Making Tax Digital compliant software.
Unsure if you are compliant? Download our free MTD Guide to find out today.
If you are required to be Making Tax Digital compliant, it is important that you contact an accountant to help you move to the cloud to ensure you are set up correctly and are not going to be hit with any unwanted fines or penalties from HMRC.
Is Making Tax Digital on hold?
Making Tax Digital is being phased in for different aspects of tax over the next few years. HMRC have announced their decision to delay plans to introduce digital tax services for individuals/sole traders, as they focus their efforts on Brexit.
HMRC have confirmed that MTD for VAT is still taking effect from 1st April 2019. All businesses over the VAT threshold (currently £85,000) will have to comply with the MTD regulations.
However, MTD for income tax and corporation tax for individuals is on hold, with no implementation date yet confirmed.
When does Making Tax Digital start?
Making Tax Digital for businesses over the £85K VAT threshold will kick in starting April 2019. At the moment, HMRC hasn’t set any solid deadlines or implementation dates for the next phase of MTD once all VAT businesses are complying. Their plan is for companies to start submitting their annual accounts/annual figures directly to the HMRC portal from a compatible accounting system in a similar manner to VAT. HMRC also plan for sole traders and freelancers to start submitting all financial information via digital records using a compliant software such as Xero or Quickbooks, but this is expected to take place in 2020.
We would advise you move to the cloud as soon as possible, so you have a few years worth of accounting data in the system in order to run comparison reports, check your progress/growth, and search for inefficiencies within your business.
Is Making Tax Digital compulsory?
Yes, if the MTD Fact sheet confirms you need to be MTD compliant, then you don’t have a choice. Set yourself up on a cloud-based system as soon as possible. The earlier the better.
Currently, if you are not VAT registered with a turnover of over £85K of vatable income, it is not compulsory to register for Making Tax Digital. However, we would encourage you to move from an offline to an online system as soon as possible in order to get used to the new accounting system, build up your historic data within the system and obtain better viability on your financial situation in order to spot overspending patterns or to make sure you are hitting your monthly revenue targets.
How can my accountant help me with Making Tax Digital?
Accountants can support you through Making Tax Digital so long as they have the following:
- Permission from you to act as an agent on your behalf for VAT
- Registration for an Agent Services Account which is linked to your HMRC account
- Access to Making Tax Digital compliant software
An accountant can guide you through setting up the above points, each is required in order for someone to talk to HMRC on your behalf. It is time-consuming to set up agent access with HMRC as authorisation codes need to be requested from HMRC through the agents gateway. These are then sent out by HMRC via post taking seven to ten days to arrive.
Need help becoming Making Tax Digital compliant? Book in for a free no-strings-attached MTD compliance review to get your action plan ready. Book in here.
Which Making Tax Digital software is right for my business?
There are many MTD approved software suppliers but you should make sure you pick an accountancy software that is right for your business. For a full list of HMRC approved software, check out their software guidance for sending Income Tax.
Here at GrowFactor, we take a fresh modern approach to accounting, so that’s why we are a 100% cloud-based firm with an ‘Online Only’ policy. We’ve successfully converted all of our clients from offline platforms to online, from Sage and QB Desktop to your traditional spreadsheet. Take a look to see the software we provide to our clients and recommend for every growing business.
We’re confident that all businesses will find the move to the cloud to be revolutionary for their business. That’s why I’ve been creating regular video content breaking down the myths of MTD. If you aren’t sure which software is best for your business, watch my video on choosing the best accounting platform for you.
If you still aren’t convinced MTD is the way forward, know that once set up you can expect to benefit from:
- A fully MTD compliant business with no fines for non-compliance
- Real-time financial information
- Expense tracking facilities to spot any unnecessary subscriptions
- Simplified invoice and receipt processing
- Quick decision-making abilities
- Reliable business forecasts to help obtain cash for development
- More time to spend on growing your business
Once on the cloud, 100% of our clients have remained on the cloud and found it to be a key contributor to their recent success. Are you ready to become MTD compliant? We’re offering free no-strings-attached MTD compliance reviews so you can get your MTD action plan ready before the deadline.