If you’re getting ready for making tax digital, here’s what you need to know.
On the 1st April 2019, the way VAT is filed with HMRC will change forever. Tax and accounting have been moving towards digital for years now. We’ve been working closely with HMRC and with cloud accounting platform, Xero, to ensure we’re doing everything to be as digital as we can.
Change can often be feared and in the midst of Brexit, GDPR and other big governmental changes you can be forgiven for thinking that Making Tax Digital is just another terrible chore and a blow to UK businesses. However, it’s actually a good thing when you look into it and it’s not going to be a horribly painful exercise if you get yourself ready now.
Why is this happening?
There’s only one way that accounting is going and that’s into the cloud. Accounting on spreadsheets and old-fashioned ledgers is coming to an end and slowly, step-by-step, the accounts of millions are heading to an online and in-the-cloud system that’s better for everyone.
The cynics might suggest that Making Tax Digital is so that HMRC can spy on their accounts and have a better (live) idea of what’s going on, but the fact is, it will benefit both sides.
As with any change, there has been some confusion and of course scaremongering but Making Tax Digital is not as scary as it sounds.
So what is Making Tax Digital?
The simple answer is that from April 2019, you’ll need to record your taxable records and submit your VAT returns through Making Tax Digital compatible software.
That’s it. If you’re using a system like Xero, then you’re ready to go and you don’t need to do anything.
The longer answer to this is that Making Tax Digital is an initiative from HMRC to get the tax system of the UK online. It should be more effective for the economy and the businesses who pay tax.
At the moment, this will only apply to businesses who are VAT-registered, so above the threshold of £85k. These businesses will have to keep their records in a digital form and submit their VAT returns directly to the HRMC from April 2019.
It’s actually really simple to do this. Using compatible software makes it pretty painless and in the long run a better option for you as a UK business.
The old way of re-entering data from spreadsheets on Excel will be over and your business will move towards a slicker and more efficient way of recording and submitting tax.
A great chance to streamline
Making Tax Digital is a great opportunity for your business to streamline your accounts. If you haven’t already done so, a move to cloud-based accounting like Xero will help you to have better data that you can access with ease from any device. This will help you to stay on top of your cash flow, your sales and your business in general, helping you make better and quicker decisions.
Making Tax Digital is a good thing (even if it’s nudging you when you weren’t strictly ready to move in this direction!).
Are you already compliant?
If you’re already using an accounting system like Xero then you may well be. Xero and others like it including Sage Business Cloud and Zoho, have been listed on the HMRC website as compliant for the new law in April. You can find the full list of compliant software packages here. Don’t panic if your software isn’t on the list as many other software providers are working on becoming compatible.
Will it be expensive to move to the cloud?
If you’re currently using a traditional method and you’re over the £85K threshold, then you will need to move to a compliant system. It isn’t a choice. But it doesn’t have to be expensive.
Getting your records from an older system into a cloud-based accounts package is going to take a little time but to move from Sage or similar to something like Xero isn’t a big headache for a good accountant. That said, it will probably be a chargeable task unless it’s covered in your agreement.
Then the only cost you’ll have is the monthly or annual fee of the software. A system like Xero or Quickbooks can start from as little as £20 per month and the benefits to your business once you’re up and running dwarf that.
For more information on making tax digital head to the HMRC website here or give us a call.
If you’re currently submitting VAT to HMRC then Making Tax Digital applies to you – it’s time to take action. Do it now before everyone starts panicking about it at the end of March next year.
If you’re working with us already, then you’re in safe hands as we’re working towards MTD with all our VAT registered businesses right now and many are already compliant.
As always, get in touch if you have any questions.