Over the next few years, the way you file your tax return could be changing completely.
Making Tax Digital (MTD) is HMRC’s initiative to create a modernised, digital tax system, eventually replacing the annual tax return for millions of people in the UK.
Whether you’re preparing for the first mandatory stage of MTD next spring, or you’re looking to stay ahead of the curve and update your accounting process early, it’s a good idea to prepare your business for digital tax reporting now.
We’re on hand to make this a seamless change, and support our clients to set up the right software and adjust to the new system.
From 1 April 2019, MTD is set to become mandatory for VAT-registered business with a turnover above the £85,000 VAT threshold.
These businesses will need to keep digital records, and use software to file their VAT return with HMRC.
Other businesses with turnover below the threshold can also voluntarily register for the first phase of MTD, but they won’t be able to opt back out again.
The government has said it will not widen the scope of MTD for VAT to other taxes until the system has been shown to work, and not before April 2020 at the earliest.
What are the benefits of MTD?
Under the current system, trying to keep track of paper records or even just managing the data on traditional software can easily lead to mistakes.
HMRC believes digitising the tax system will help businesses to record and report their taxes more accurately.
In theory, this means it should help towards closing the gap between the tax HMRC thinks it should receive and what it actually receives, which was estimated at £33 billion in 2016/17.
What kind of software can you use?
To meet the requirements of MTD, you’ll need to be using ‘functional compatible software’.
This must be able to keep digital records and provide returns to HMRC using that data. It also needs to be able to receive information from HMRC.
To some extent, how you do this is up to you. You could use one software program that can perform all of these tasks, or a set of different products used in combination.
For the purpose of sending and receiving information, you’ll need software that can communicate with HMRC through its application programming interface (API) platform.
To see which software you can choose from, check this list of HMRC-approved software suppliers for MTD for VAT.
Taking your accounts online
At least some of your software setup for MTD must work online, but that’s not the only reason to make the switch from desktop to online software.
Cloud-based software can help simplify your accounting process, making it easier, more efficient, and accessible from more than one device.
Unlike traditional accounting software, it’s updated in real-time, allowing us to work collaboratively with you without the confusion of sending files back and forth.
We offer Xero accounting software at a discount, and can support you through the process of setting it up.
Get in touch
We’ll help you scale the heights of MTD, from choosing software through to handling your digital accounts.
Contact us to talk about how we can help.