We’ll answer these questions –

  • What is Making Tax Digital?
  • Does MTD apply to my business?
  • What records do I need to keep digitally?
  • Why is it being introduced?
  • Will MTD make my business life easier or more difficult?
  • What do I need to do?

What is Making Tax Digital?

Let’s hear it from the horse’s mouth; from the HMRC website –

“Making Tax Digital is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs.

HMRC’s ambition is to become one of the most digitally advanced tax administrations in the world.

Making Tax Digital is making fundamental changes to the way the tax system works – transforming tax administration so that it is:

  • more effective
  • more efficient
  • easier for taxpayers to get their tax right”

Does MTD apply to my business?

Almost certainly.  HMRC is doing a gradual roll out of Making Tax Digital over two phases.

Is your business turnover more than £85,000 (the current VAT threshold)?
Then the key date for you is April 1st 2019 when phase 1 kicks in.  This is all about your VAT returns.  You’ll find out more below.

If your business turnover is less than £85,000 and you’re not registered for VAT, then phase 2 of MTD will apply to you.  This starts, at the earliest, April 2021 and will apply to all businesses, regardless of size. This phase relates to your corporation or income tax returns. Further details have yet to be announced.

There are one or two rare exceptions to these criteria.  If you’re unsure, then call 020 31376565.  We’d love to help.

Phase 1
The first phase of Making Tax Digital starts with MTD for VAT. From April 1st 2019 all VAT registered businesses above the threshold of £85,000 will have to keep digital records and use HMRC recognised software for MTD to submit their quarterly VAT returns.  Over 96% of businesses affected by MTD need to start following the rules from the beginning of their first VAT period starting on or after 1 April 2019. Around 3.5% of businesses, with more complex requirements, can wait until 1 October 2019 before they need to follow the rules. HMRC will write to you if you fall within this small percentage.

Businesses below the threshold will continue to use the HMRC online portal and then follow the MTD requirements from April 2021 onwards.

What records do I need to keep digitally?

HMRC has ruled that the following must be kept digitally in order to comply with Making Tax Digital for VAT:

  • Business name and contact details
  • VAT number & scheme used
  • Adjustments
  • VAT on supplies made & received
  • Time of supply or receipt
  • Net value (excluding VAT)
  • Rate of VAT charged or that you will claim back
  • Daily Gross Takings (DGT) – retail scheme users only
  • Value of sales made under Gold Accounting Scheme (if applicable)
  • Total output tax on purchases under Gold Accounting Scheme

Why is MTD being introduced?

HMRC is bringing in this scheme to make the entire process of administrating, calculating and paying tax simpler and more efficient, for both themselves and for your business.

Will MTD make my business life easier or more difficult?

You might be surprised to hear that managing your business taxes should become a whole lot easier.  Here are the likely benefits –

Less stress
By submitting your tax information every three months, you’ll no longer suffer the stress of cramming twelve months of work at the end of the financial year.

Less paperwork
MTD compliant software will allow automatic records of financial transactions coming into and going out of your business, so all you’ll have to do is check the data and update it to HMRC each quarter.

Fewer surprises
Because tax will be submitted quarterly, you’ll find out what your tax liability is every few months and you’ll be able to keep track as you go along, so there’s far less chance of being hit by any large unexpected bills.

More chances to pay less tax through accurate planning
Businesses that are up-to-date on their tax obligations are much better placed to strategically manage their bills, with a chance of keeping them as low as possible.  For example, armed with more accurate information, you might choose to increase your retirement contributions or reinvest in your business.

Are there any disadvantages of MTD?
We can’t see any reason to object to gaining greater visibility about your business’s tax position, however, for some businesses there will be changes to manage. Here’s a summary of the issues you may have with making tax digital:

Compulsory use of technology
HMRC will require you to submit your returns online, through MTD compatible software and keep digital records. Change can often seem daunting, especially if it requires you to adopt new technology. For a portion of society unused to computer work or cloud-based platforms, this could present an overwhelming prospect.

More reporting deadlines
While VAT returns have always been due quarterly.  For income tax and corporation tax, the annual filing of returns will switch from annual to quarterly.

Loss of privacy
You might feel uneasy that some of your electronic transactions will be visible to HMRC.  But you shouldn’t need to worry – you’ll be able to review the data and fix any mistakes prior to submission.

What do I need to do now?

That depends on how you currently keep your records. HMRC have officially recognised a range of software providers supporting Making Tax Digital for VAT. If you are already using one of these then the answer is ‘very little.’

If you’re using software that is not MTD for VAT compliant or you use manual record keeping, you have two options:

  • Move to MTD for VAT-compliant software.
  • Use a bridging software product to submit your MTD for VAT return for you.

At The Business Bookkeeper we recommend using the cloud accounting software Xero or QuickBooks. Regardless of MTD, you’ll find there are tremendous advantages to using these platforms – all kinds of efficiency benefits with almost every aspect of your accounting procedures. We’re certified and experienced in these two systems.  If you’re not familiar with them, we’re here to help.

Just bear in mind

Here at The Business Bookkeeper, we’re MTD experts.  If you need to make the change don’t leave it until the last minute. The earlier you can start the easier it will be to plan and manage. We’re perfectly placed to guide you through the switch to Making Tax Digital.  All it takes to give you peace of mind is to pick up the phone.  We’ll be delighted to hold a no-obligation consultation.

Call us on 020 31376565 or send us an email