Is making tax digital compulsory?Simple answer: yes. A lot of business owners or managers are feeling unprepared, so this article should assist with knowledge and structure. A good place to start, even though late, is storing VAT records digitally. Bridging software can handle old spreadsheet data, and your VAT return via the new MTD will be easier. Do not leave it to the 11th hour, as you may encounter contact issues with HMRC when 1 million other users are doing the same thing. An accountant or software provider would be a prudent tool to have on-board for this transition.
What is the best software for making tax digital?MTD bridging software is permitted and will facilitate using spreadsheets for VAT returns, communicate data with MTD systems and assist with compliance. In short, it makes digital filing easier. If you are using cloud-based MTD compatible software (e.g. Xero, QuickBooks, Sage etc.), you can give your tax advisor remote access. Older versions and small brand accounting software can also work without upgrades if you buy the bridging software. Bridging software offerings are available from Absolute Software, Avalara, BTC Software, Intuit (QuickBooks), MTD Express, Neilson James Technology, PWC (free to charities), VT. The license price points are approximately £40 pa. Professional licences are available. MTD Express (MTDex) is a popular option. The examples below are based on MTDex:
Example 1: Factors = Company turnover >£1m. Old SAGE Line 50 software. Cloud upgrade not favoured. Solution = For £40 a year license. Remain the same—purchase bridging software.Access your online account with your bridging software and upload your VAT 100. The software will read the VAT 100 and populate the API enabled VAT 100 in their system, ready for uploading from the bridging software. A spreadsheet can work with a digital link to HMRC, provided by bridging software. Your spreadsheets should summarise into a worksheet aligned to the 9 Box VAT return. Create a new worksheet using the bridging software to source the VAT 100 template. Download it and copy the cell links on your current VAT 100. Delete the old VAT 100 worksheet, and every quarter upload the templated VAT 100 into bridging software for the VAT return to be submitted.
Example 2: Factors = VAT registered IT contractor, taxable income >£100,000. Excel spreadsheets. 30 April VAT returns stagger.The various worksheets being utilised are for sales invoices+payments, purchase invoices and bank reconciliation. Hyperlinks exist from the bank recon worksheet to all other worksheets. A summary worksheet is for VAT returns with nine VAT return boxes hyperlinked to the appropriate cells in sales and purchase worksheets. In MTD, the contractor can maintain the excel system but needs bridging software. After setting it up locally, the contractor must then do a communication set-up step and grant his software the authority to connect to HMRC via the bridging software links. The contractor could manually capture his excel VAT return numbers into the bridging software. Next, the contractor could allow the bridging software to upload to the API gateway digitally. There is a one-year soft landing for digital links. A simpler solution would be to use the templated VAT form and upload the templated VAT return into the bridging software. This process would cover returns up to 30 April. The process will change for the VAT return to 31 July 2020 as the ‘grace period’ or soft landing period for manual uploads has ended. The contractor must now upload the excel VAT return into the bridging software which is facilitated by all bridging software. Now that your beloved spreadsheets are safe in this cloud and digital era, you can breathe a sigh of relief as well as see that the bridging of them is easy. Desktop access to the internet is needed, then logging into your bridging software and uploading your templated excel VAT 100. The API enabled VAT100 is then populated automatically from the imported file. And you finish with submitting your return.
Additional functions: E-recording functionsThere are always software systems that are streamlined and those that have bells and whistles. One of those bells is an e-recording feature. This allows the bridging software to do the digital accounting records of the business. This additional feature is very helpful for manual record clients as it makes MTD management a much easier process to handle. Referring back to the popular option, viz. MTD Express, this bridging software, does have this additional feature for the second-hand margin scheme and retail schemes.
Mainly manualIf leaving manual processes for your very specialised business or unique business will be beyond possible, it would be prudent to submit a request immediately for an SI 1995/2518 Reg 32B Para 1(c) exemption. You might state that MTD is not reasonably practicable by reason of age, disability or location, as an example. Only once this request has been granted may you continue with manual records. If the request is rejected, all is not lost. Your accountant could still design a solution via a spreadsheet that looks like your cashbook, attempt training you in raising invoices in Xero (or similar), which is extremely easy and other ideas that could solve the problem.
Is there any free MTD software?Cloud-based accounting software is a wonderful solution that suits most business, and it is especially suitable for MTD, not required bridging software. A number of clients do not favour it due to cost and/or training requirements or costs. In that instance, it is still viable to maintain your accounting via spreadsheet records (though we do urge you to consider some type of software) as well as hard drive-based SAGE, QuickBooks etc. or in-house custom-built software. The beauty of bridging software is that it has been astutely designed to accommodate a wide variety of clients’ needs, thus allowing the majority of the market to continue with their existing accounting procedures. The software is affordable with individual licences mildly price at £40 pa. Accounting professionals can obtain agent licences as low as £1 or £2 per VAT return subject to the number of licenses purchased. A free option is available from Bokio.co.uk, and Avalara has a new, free Microsoft Excel Add-In to help businesses and charitable organisations of any size. HMRC is not offering free software. Bridging software will also be helpful for everyone to use when MTD moves to income tax as well.
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