Following on from our ‘Making Tax Digital – who needs to register and how to comply’ article in February, we review what you should be doing now if you haven’t yet registered and need to, and what’s next in Making Tax Digital.
What is Making Tax Digital?
The primary legislation for Making Tax Digital relating to VAT and Income Tax is contained in the Finance (No.2) Act 2017. However, the implementation of the framework is being rolled out on a gradual basis.
The first tax to come under MTD was VAT. Income Tax will be next.
Making tax digital in relation to VAT
If your business is VAT-registered with a taxable turnover above £85k, then you should be (or, if your organisation fell into the deferral period, be in the process of) submitting your VAT returns in line with Making Tax Digital (MTD).
Once registered you will be submitting your future VAT returns directly to HMRC using either a cloud-based software accountancy package such as QuickBooks, Xero, Sage or Zoho Books; or using a bridging solution to stay compliant.
MTD now – Digital record keeping for VAT-registered business for the digital filing of VAT returns is now mandatory under MTD
Making Tax Digital in relation to Income Tax
There is no timeline for the next stage of MTD which will affect self-employed businesses and landlords. At the moment, if you fall into either of these categories, you can voluntarily use software to keep business records digitally and send Income Tax updates to HMRC instead of filing a Self-Assessment tax return.
MTD 2021 – Self-employed businesses and landlords will need to keep digital records and file income tax under MTD
The government confirmed in March 2019 that they would focus on supporting businesses to transition, and will therefore not be mandating Making Tax Digital for any new taxes or businesses in 2020.
Future MTD schemes
In the long run, it is likely that Corporation Tax will be brought into the MTD system. Why? Because this will help the government to close the £9 billion tax gap attributed to avoidable mistakes. By using digital record keeping and filing, they hope to close the tax gap.
MTD future – Corporation tax will be brought into the MTD system
How to prepare for the future of MTD
Digital record keeping will not be an option going forward; it is likely to be mandatory under MTD for the record keeping in relation to the reporting and filing of all taxes (for individuals and businesses). We therefore highly recommend that you move to digital record keeping sooner rather than later, to avoid the stress and panic of doing it at the last minute.
MTD compliance – We help you to select, migrate and roll out the right MTD compliant solution for your business. The benefits often outweigh the costs – helping you to manage your business.
There are many options for digital record keeping and a dedicated MTD-compliant accountancy software package will reduce the amount of time that you have to spend doing mundane tasks. For example, automated bank feeds and intelligent algorithms in dedicated accountancy software packages, help to make bank reconciliations much quicker and easier to complete. This will save you time and money. You can search HMRC’s website for MTD-compliant software
Cloud accounting offers additional advantages – helping you and your team to manage your finances in collaboration with your accountant. The value of their expertise should not be underestimated. They are there to spot bookkeeping errors, advise on how to handle taxes and to help with budgeting and forecasting. Examples include advising when an item should be capitalised, how expenses should be treated, when VAT should be claimed or charged, how to handle VAT reverse charges, and spotting when your business bank account has been accidentally used for private transactions. Tax qualified accountants will also advise and help with tax planning. Working in collaboration with your accountant is easier and quicker when you use a cloud-based accountancy package.
Migrating to digital and cloud accounting may be easier and cheaper than you think. Our friendly team of accounting, IT and cloud-migration specialists will help you to plan and painlessly transition to a new system. Just give us a call to find out how we do it and how little it may cost – you may be pleasantly surprised!
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