Making Tax Digital – don’t panic!
Three scary sounding words, Making Tax Digital (MTD), have haunted small businesses across the UK since HM Revenue & Customs published a strategy to implement a new system of digital tax accounts in December 2015.
What does MTD mean?
The primary aim for HMRC is to make administration more efficient and ultimately easier for your business to get your tax right by implementing a fully digitalised tax system by 2020 with the long-term aim of bringing an end to the dreaded self-assessment. This also has the added benefit to HMRC of reducing their overheads for managing tax. The current estimate is that avoidable mistakes cost the country over £9bn every year.
To quote the official line from HMRC; “Making Tax Digital for VAT requires VAT registered businesses with taxable turnover above the VAT registration threshold to keep records in digital form and file their VAT Returns using software.”
This is trying to address two major points;
- A YouGov poll returned the shocking stat that 61% of businesses say they have previously lost receipts needed to be submitted
- Keeping records on paper/submitting manually, results in errors.
So, by changing the approach to collection and processing of receipts into a digitised system, we can help mitigate these points.
What this is not saying is that you HAVE to change your business process, if you like a spreadsheet (and who doesn’t frankly – we blooming love them) you can still use them, but you do need a piece of software that ‘bridges’ between your spreadsheet and the HMRC system. There are many, many approved solutions out there (over 250 according to the tax service website) https://www.tax.service.gov.uk/making-tax-digital-software however, HMRC will not endorse or recommend any particular product.
If you’re feeling confused, we can talk you through your options about how Cloudsource Solutions can help your business become compliant.
How does MTD apply to me?
Firstly, do you need to register? Some small businesses are already exempt. If you have a taxable turnover below the VAT threshold of £85,000, you are not required to join MTD, although you can choose to join voluntarily – and if you are intending to grow or just want to be as efficient as possible, then it makes sense to get everything in place.
The majority of VAT registered businesses with a turnover above the £85k threshold, need to keep digital records and file VAT returns using compatible software (hint – Xero). Businesses that cannot go digital will not be required to do so – this is a little vague but we can help you find out what applies.
The key thing to know is that you shouldn’t need to provide additional information or send more frequently than you do now.
When does this all kick in?
It already has, businesses are required to join MTD and submit their VAT returns using the new service for their first VAT period which begins on, or after 1 April 2019. For the majority of businesses who file quarterly, currently your first MTD returns won’t be due until August or later. However, you WILL NEED to have signed up to the service, started keeping records digitally and got your MTD compliant software in place to send information in good time before you file!
Don’t forget that you will probably be able to claim any costs for hardware and software against your tax.
Still worried? HMRC knows that this will take time to understand the new requirements of MTD and during the first year they will take this into account with regards to digital record keeping and filing penalties where you are doing your best to comply. However, let’s not go there, we can help!
How can Cloudsource help with MTD?
As Xero Gold Partners, we know how to process your VAT returns digitally to HMRC, and will make sure everything is in place. We will work with you to put in place the procedures to ensure your bills and invoices are processed smoothly into Xero using tools like ReceiptBank and TripCatcher (for that all important mileage claim) providing you with easy to understand monthly reporting.
Don’t just take our word for it;
“I approached Cloudsource Solutions in late March 2019 as I needed help with getting MTD ready and just didn’t have the time. I run a company specialising in digital signage solutions and with client commitments, just hadn’t got round to sorting my accounts processes. Cloudsource reacted speedily and got me MTD ready within days. Exactly what I needed and I am now looking to bring more of my accountancy procedures over to them in the future. “
Arran Davis, Owner & Director (APD Solutions Ltd Wiltshire)