Making tax digital
What is “Making Tax Digital”?
Making Tax Digital (MTD) is a government initiative to modernise HMRC’s tax system, with the aim of making the whole process of administrating tax simpler and more efficient. All of your tax information will be in one place (your digital account) and you will be able to pay tax based on your business activity during the year. You can upload and update your tax account in real time.
Will it affect me?
If you own a business, you are self-employed and you pay income tax, national insurance, VAT or corporation tax then it is quite likely you will be affected. This means you could be required to keep track of your tax affairs digitally using MTD compatible software, and to update HMRC at least quarterly via your digital tax account. Eventually this will abolish the annual tax return. This will be the law and there will be penalties for non- compliance.
What do I have to do?
You will need to open and log into your digital account. Everyone will be allocated one through the current Government Gateway. Then you will need to ensure your accounting software can update this account at least quarterly. For most businesses, this means a move away from desktop and onto Cloud based accounting software. You are required to choose digital (Cloud) software to maintain your business records and to provide updates of information to HMRC. You will be prompted to send summary updates directly to HMRC – quarterly updates will need to be submitted within a month of quarter end, and an end of year activity report will be due within nine months of the end of the accounting year. As your accountant and tax agent, we can advise you on the software you will need and how to comply with the new quarterly reporting requirements.
When is all this happening?
MTD starts with businesses above the VAT threshold limits (currently £85,000) in April 2019. The first VAT period to which MTD applies will be the one commencing on or after 1 April 2019.
Those affected will be required to keep digital records for VAT purposes. By 2020 it is most likely all other businesses will have to comply.
What are the advantages of making accounts digital?
Digital accounting software has significant advantages over the traditional ways of bookkeeping.
Imagine if you could:
• See a clear picture of your current financial position, in real-time;
• Have your accounts 100% online, so there’s no software to install and everything is backed up automatically. Updates are free and instantly available;
• Avoid upfront accounting software costs – upgrades, maintenance, system administration costs and server failures are no longer an issue;
• Have your bank feed your data directly into your accounts on a DAILY basis;
• Take a photo on your phone of a purchase invoice and it was posted automatically; AND
• See your results, who owes you money, who you owe to and your business bank balance 24/7, 365 from your phone. Depending on setup, automated credit control as well.
For more information or to discuss how your business can switch to digital accounting and comply with making tax digital contact us.