Are You Prepared For MAKING TAX DIGITAL?
HMRC’s Making Tax Digital changes are coming and businesses are unprepared for these new changes. According to Accountancy Age, a third of VAT-registered businesses are not even ready for the Making Tax Digital start date. Furthermore, senior sector bodies like the ATT, ICAEW and CIOT have all voiced their concerns regarding the MTD deadline – even going so far as to suggest a possible delay?
However, the government is continuing with deployment. This means that by the 1st of April 2019, if you run a company with a taxable turnover that is above the VAT threshold you will have to follow the MTD rules – which means you’ll have to manage your records digitally and make your VAT returns through digitally compatible software (like QuickBooks) when filling your tax returns.
What does all this mean?
Making Tax Digital is a HMRC policy designed to revolutionise the way the UK tax system works with an end-purpose of structurally ending the practice of self-assessment by creating an ‘always-on’ digital tax account for each business and citizen in real-time.
It was originally announced in the 2015 Spring Budget by setting, what some argued was a Herculean goal, of propelling UK businesses and individuals towards the adoption of digital record keeping software and ending paper-based tax accountancy approaches in order to make the tax system fit for purpose in the 21st century.
The short-term goal of Making Tax Digital is to help create efficiencies within the administrative systems within the HMRC by making tax-related activities easier to action through the deployment of digital systems by 2020 that will improve the management of individual and organisational tax accounts.
The MDT doesn’t discriminate and will affect a multitude of different taxpayers within the current tax system. It will affect businesses, the self-employed along with landlords. The Government’s so-called ‘new and improved’ Making Tax Digital tax regime will force business leaders to maintain digital tax records using compatible tax and accountancy software.
What Can I Do To Remain Compliant?
HMRC operates a turnover ‘test’. This means that from the 1st of April 2019 if your self-employed or business taxable turnover is greater than the VAT registration threshold of £85,000 you will have to follow the Making Tax Digital rules. There are variables if you do not meet this threshold like deregistration from VAT and other criteria, available here, but for the most part businesses will have to follow the MTD rules.
Furthermore, the MTD rules will ‘apply’ to your first VAT period that begins on or after the 1st of April 2019 which are set out in your VAT return details agreed by HMRC.
You will need to use an approved software solution, like QuickBooks, to help digitise your tax records and to make sure you meet the minimum criteria for Making Tax Digital set out by HMRC.
Digital Record Keeping – What Does This Mean For Making Tax Digital?
The HMRC clearly state what they mean by Digital Record Keeping and what people/businesses need to do:
“All VAT registered businesses must keep and preserve certain records and accounts. Under Making Tax Digital, some of these records (see paragraph 3.3) must be kept digitally within functional compatible software (see paragraph 3.2). Records that are not specified in this notice, or that are not required to complete your VAT Return, do not need to be kept in functional compatible software.”
It should be noted that the legal requirements for certain key documents haven’t changed. The Making Tax Digital approach means you will have to record all your VAT records and account information digitally using software like QuickBooks but you will need to maintain paper records of legally required documentation – like import VAT certificates (C79 notices) in their original form. Whilst the idea is to move to a digital norm, the reality is that for certain sectors MTD will not mean a totally paperless tax experience.
A Little Hope for Businesses?
There is a small ‘loophole’ called the ‘Soft Landing Period’. HMRC have mandated that for a short period of time – between 1st of April 2019 and 31st of March 2020 – businesses will be given a grace period to allow ‘soft links’ between their API-enabled digital tax software and the HMRC when there hasn’t been a link created (i.e. the function has not been setup). This means that for those businesses that still use spreadsheets and don’t use software like QuickBooks then time is ticking away as they must start using digital software to maintain full compliance.
HMRC outlines why it wants software to connect digitally:
“Data transfer or exchange within and between software programs, applications or products that make up functional compatible software must be digital where the information continues to form part of the digital records. Once data has been entered into software used to keep and maintain digital records, any further transfer, recapture or modification of that data must be done using digital links. Each piece of software must be digitally linked to other pieces of software to create the digital journey.”
As the Making Tax Digital experience is new and as software companies are playing catch-up (even though they had years to get ready), HMRC in order to maintain the integrity of this ‘digital journey’ of digitally-linked software apps that digitally record a digital tax record, they are giving taxpayers’
How Can Prestige Business Management Help My Business?
Prestige Business Management can help your business or self-employed business become Making Tax Digital ready. We can help you setup and prepare QuickBooks accounting software for Making Tax Digital deadline this April. Furthermore, if you have yet to use digital software like QuickBooks we can help you take advantage of the ‘Soft Landing Period’ loophole by using Prestige Business Management’s own bridging software to help you use copy and paste links between your accounts and our software to meet the minimum requirements set forth by the HMRC for this upcoming tax year. We can help your business achieve full compliance and help you understand more about Making Tax Digital. Why not call our helpful team today to discuss your unique Making Tax Digital needs further? Simply call directly on 0203 773 2927 to find out more?