Making Tax Digital: is your business ready?
As a business owner, you know that people start businesses because they have the entrepreneurial drive to turn their innovative visions into reality.
Tax may not be your favourite thing (even if you are an accountant) but it’s an important factor for every business.
Making Tax Digital (MTD) is part of a government initiative with the aim to make it easier for you and businesses to get your tax right, reduce errors and to keep on top of your affairs.
This should free up your time so you can concentrate on developing your ideas rather than being bogged down with taxes.
If you run a construction firm, the way you need to manage your tax obligations will be different from that of a marketing agency, a tech start-up, or a florist.
So, the way each business embraces MTD will also differ.
The Business Finance Guide caught up with Frank Haskew, Head of Tax at ICAEW to find out everything you need to know before 1st April 2019.
“While MTD may feel like a headache in the early days, the clear message from the government is ‘that this is the future’. There will be a learning curve in the short-term but it should help make things easier for your business in the long-term.”
Making Tax Digital – when do I need to act?
If you run a VAT-registered business with a taxable turnover over £85,000, you will need to do the following for VAT periods beginning on or after 1 April 2019:
- Keep records in a digital format
- Submit VAT returns using commercial software rather than the current government gateway account during your next tax return period
If you run a smaller business with a taxable turnover below the VAT threshold you don’t need to comply. However, you can still sign up for MTD for VAT voluntarily and you might decide to do so if your business is likely to exceed the threshold at some stage in the near future.
“It’s important to remember that the basic principles of the VAT system have not changed, but it’s the way that businesses must file their VAT returns and keep their records that have changed.”
You may already be using commercial accounting software, which should have the necessary functionality for submitting MTD returns built in. In this case, MTD for VAT will be more of an evolution rather than a revolution.
You can keep your accounting records and prepare and submit your VAT return in a very similar way to you did before.
With April just around the corner, it’s time to talk to your accountant and make sure all the necessary steps are being taken. If your accountant hasn’t spoken to you about MTD, ring them up and ask how they will help you comply.
Where to go for advice and support
If you are unsure about MTD and its requirements, then you can find guidance from a range of sources.
If you have an accountant, they will be able to advise you on how they help clients adopt MTD and how they can make this easier for your business.
Detailed requirements have been published by HMRC VAT Notice 700/22: Making Tax Digital For VAT
ICAEW has also produced a range of content with guidance and information on MTD, which includes articles, webinars and tools. Details of these can be found on the ICAEW MTD hub.
“MTD is the first part of an overall HMRC digitalisation programme, as HMRC are also looking to digitalise income tax although not before 2021. This is a steep learning curve on VAT and it’s important to see how it works before any further decisions are made on the digitalisation of any other sectors.”