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:
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.