Making Tax Digital (MTD) is a new initiative from HM Revenue & Customs (HMRC), intended to make it easier for individuals and businesses to keep on top of their taxes and submit information. It is part of HMRC’s plans to become more digitally advanced – “one of the most digitally advanced tax administrations in the world”, to use their own words. The overall aim is to make our UK tax system more efficient for all involved, and to make tax easier to manage for businesses of all sizes.
What is Making Tax Digital for VAT?
Currently, Making Tax Digital is only going to be applicable for value-added tax (VAT). This means it won’t affect businesses with a small turnover, or start-ups, as it will only be relevant to those who are registered for VAT (or who will need to register in the upcoming tax year).
You must complete compulsory VAT registration if:
- You expect to have a VAT taxable turnover of more than £85,000 within the next 30 days (i.e. you will make more than £85,000 in those 30 days alone)
- Your business’s VAT taxable turnover was £85,000 or more in the last 12 months
If you are a VAT-registered business and your taxable turnover is above £85,000 (correct as of February 2019), you will need to go digital. This means you will have to:
- Keep VAT records digitally
- Submit your VAT Return using software that is compatible with MTD
You will no longer be able to use the Government Gateway to manually submit your VAT Returns, and you will instead need to use MTD compatible software to submit them digitally.
If you are a small business turning over less than £85,000, then you won’t need to do anything about MTD for now. However, you can still choose to register voluntarily (more about this below).
Is Sage compatible with Making Tax Digital?
Making Tax Digital isn’t a piece of software – it is an HMRC initiative. To be compliant with MTD, you will need to use bridging software, that is, a type of software that connects to HMRC systems. You will use this software to log your VAT records and to submit them to HMRC, plus HMRC can send you information digitally as well.
Many different accountancy software packages are compliant with MTD, including one of the most popular on the market, Sage.
This is some of the bridging software that you can use with MTD:
- Solar Accounts
Please note that this list is not exhaustive – these are just some ideas about the bridging software available. If you want to use a specific type of software, you can find out if it is compatible on the HMRC website.
If you want to learn more about MTD-compliant software and how to get the most out of it, we run Xero workshops that could be very beneficial for you. To find out start dates and enquire about attending, please just get in touch – call 020 8468 1087 or email .
When is Making Tax Digital coming in?
However, the rollout of the MTD scheme is now back on track and it will be in place from the new tax year starting on the 6th April. If you are VAT registered and have a turnover of more than £85,000, you will need to be fully registered and prepared for MTD before this date.
There is a very small amount of businesses that won’t need to be registered by this time. If this applies to you, though, you will have already heard from HMRC.
How will my small business be affected by the change to VAT submissions?
Once you are used to Making Tax Digital, there should be very little material change for your business. In fact, MTD can hold certain benefits for your business.
If you are a small or start-up business with a turnover below the VAT registration threshold, you might want to consider signing up to MTD ahead of time. Here’s why:
- It can make your accountancy processes easier. The whole point of MTD is to digitalise tax and make it easier for businesses to keep track of VAT (and, eventually, other types of tax). You can streamline your processes using MTD.
- Easier processes mean fewer mistakes. As a small business, VAT might well be quite new to you. Digitising processes and making them simpler means fewer mistakes – and mistakes can be costly when it comes to your tax.
- More time to focus. A report by Deloitte found that businesses using more than the average number of cloud tools grew 26% faster than those not using cloud technology! MTD can give you time to grow your small business.
- You will probably need to register in future. MTD has already been tested and it’s only going to become more prevalent, as other types of tax are also digitised. You could save yourself the task of having to sign up in future by doing it now.
- You can complete all accountancy and bookkeeping in the same place. You will submit your VAT Returns via MTD using your accountancy software package. By signing up now, you will be able to manage everything in one single place.
Making Tax Digital – an expert opinion
As accountants helping a wide range of small businesses and SMEs, we are happy to offer expert advice on Making Tax Digital.
Our Managing Director, Joanne Bell, says: “Making Tax Digital is going to be a big change for some, most notably those who aren’t currently keeping track of their VAT digitally. It won’t just affect the way you submit your VAT Returns, it will also affect the way you are keeping your records, so it could mean an overhaul of processes for small businesses. However, the changes are designed to make your life easier in the long run and to help you to run your business successfully. If you don’t already have an accountant, now could be a good time to consider working with one, as they can help you with the transition. You will also need MTD-compliant software, which your accountant will already have and can set up for you, so you won’t need to invest in a whole package yourself.”
MTD and the future of your business
Whilst change in business is always unnerving, especially if you run a small business, Making Tax Digital is an exciting change to the UK tax system. As with anything that is going to require different processes and new systems, it could take some getting used to. But long term, it’s something that we are looking forward to as we know it will benefit our clients. Anything that makes dealing with taxes that little bit easier is a welcome change.
If you would like to ask us anything about Making Tax Digital and how it might affect your small business, then Bells Accountants will be happy to advise.
Call 020 8468 1087, email or fill in our contact form.