We’ve seen the TV adverts and everyone has been talking about Making Tax Digital for a while now but if you’re not ready for Making Tax Digital, then it’s tough to know where to start.
So, where do I start?
All VAT registered businesses who have not yet signed up for Making Tax Digital for VAT need to do so. For those who haven’t, here is the link:
https:/www.gov.uk/charge-reclaim-record-vat/sign-up-making-tax-digital-for-vat
In addition, you will get into the habit of keeping digital records. But before you go throwing away your paper receipts, you’ll need either:
- A compatible software package that allows you to keep digital records and submit VAT Returns
- Bridging software to connect non-compatible software (like spreadsheets) to HMRC systems
For some the thought of that alone is incredibly daunting: compliant software, digital
records…what does it all mean?
The regime requires you to maintain business records digitally for VAT purposes in what is known as ‘functional compatible software,’ and to file your VAT Returns using digital methods. So, comprehensive software uses the data from your day-to-day business activity to build an accurate picture of your business’s tax data in real time. Once your software has compiled the relevant data, it will then be submitted directly to HMRC via a computer.
It also means that your Accountant is going to become your best-friend for a while! You’ll be thankful for a trusted, dependable Accountant to guide you through the process as well as them having access to all the necessary tools to get you up to speed with the latest HMRC compatible technology.
So why all the changes?
You’ll be pleased to know that this isn’t change for change’s sake – Making Tax Digital is a key part of the government’s plans to make it easier for individuals to 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 so instead of Making Tax Difficult they are actually transforming tax administration so that it is:
- More effective and
- More efficient.
So, we now know that all VAT-registered businesses are required to follow the Making Tax Digital rules by keeping digital records and using software to submit their VAT returns, but does anyone really know what is involved?
Any Accountancy Practice worth their salt will have been gearing up to this for some time, so they should be more than prepared to support you in this global trend for connecting businesses with the tax authorities online. You will need your Accountant to be up to speed with the process to ensure a smooth transition for your business when the 2023 deadline arrives.
Why are we discussing Making Tax Digital now if it doesn’t affect us until next year?
The quick answer to that is so that everyone is prepared! The change is inevitable so it’s good to start new habits now, for example, utilising smart ways of interacting with your software: Downloading software apps on to your phone and taking photos of receipts and invoices, which you can store on the software, saves having to keep hold of paper receipts. Also, linking your bank account to your software ensures all your transactions can be accounted for accurately, easily and quickly. Getting used to new ways of working now means that come April 6th 2023, which isn’t too far away, you’ll already be a dab hand at Making Tax Digital and what may seem daunting now, will become second-nature.
Contrary to popular belief, HMRC prefer the light touch approach and so to have systems that speak to one another and automatically connect and reconcile will be of huge benefit for all.
What else do I need to know?
Online quarterly VAT Returns through the use of compatible software will become a thing, so being prepared for that will set you at a real advantage. HMRC will undoubtedly be slightly more lenient to begin with while everyone gets used to this, but this means your old Bookkeeping system may need updating. Accountancy firms alongside their usual services should offer a Bookkeeping Service, however, any firm willing to go over and above for their customers may choose to offer additional services such as a Check & File service.
In summary…
A trusted Accountancy firm will take the stress out of Making Tax Digital. They’ll set you up and prepare you on how to get started with compliant software so you can be certain that your tax liabilities are met on time. As you’ll be leaving your spreadsheets and paper records behind, you’ll need an Accountant who knows what they are doing, offering solutions for companies of all sizes, leaving you free to concentrate on running your business; experienced experts with the right tools at their fingertips, who can integrate with your existing processes and help you stay on top of your numbers, giving you real peace of mind; a team of certified professionals, who are friendly, attentive and award-winning, such as d&t.
With regards to Making Tax Digital for Income Tax Self Assessment, the Government has recognized the current challenges faced by many UK businesses and in recognition of this, Making Tax Digital for individuals has been delayed until April 2024, if their total gross income from self-employment and property exceeds £10,000 in a tax year.
