Everything you need to do before Making Tax Digital arrives in April 2019
Is your micro business ready for electronic VAT returns next April? Donna Torres, director of small business at Xero UK, offers company owners a need-to-know checklist ahead of HMRC’s Making Tax Digital initiative before its introduction next year.
For a small business owner, one of the most stressful moments of the year can be when the tax submission deadline is looming. Scraping together receipts, checking files and making sure your spreadsheets are accurate can be the bane of any entrepreneur’s life. But things are about to change.
As of April 2019, Making Tax Digital (MTD) will come into play, meaning UK businesses above the VAT threshold will need to process their VAT returns digitally. As a result, they will no longer be able to keep and submit manual records. Instead, HMRC will only accept VAT returns provided via software supporting Making Tax Digital for VAT.
MTD is part of the government’s plan to make it easier for businesses to stay on top of their day-to-day accounts. HMRC wants to be one of the most digitally advanced tax administrations in the world improving efficiency, effectiveness and ease of compliance. The plans signal the end of paper accounting for millions across Britain.
Read more:?HMRC urged to delay Making Tax Digital amid alarming? new findings
A modern tax system will make it easier for businesses to comply but it will take time adjusting to the new process. It will integrate digital record-keeping and enable businesses to generate and send updates directly from their software to HMRC and it starts with VAT. With tax data now being required every three months instead of annually, youll be much more aware of your numbers and will get a better understanding of your business thanks to regular analysis.
We estimate that approximately 1.2m small businesses and thousands of accounting practices in the UK will be impacted, but once the transition is complete, a streamlined VAT returns experience is another step towards fully-digitalised business management.
To be effective though, preparation needs to start now, with businesses and accountants already moving to online systems to improve efficiency, boost profitability and make the transition in April painless.
But the question is, how do you prepare for Making Tax Digital?
Figure out when you need to go digital, and don’t get caught out
It is not yet compulsory to submit your tax digitally, but the government has set a timeline for when it will be. Only businesses who have turnover above the VAT threshold (£85, 000) will need to comply in April 2019, but this will be rolled out to businesses below the threshold soon after.
The smallest businesses will not be required to use the system, although they can do so voluntarily.
Use this timelineon the ICAEW website to figure out when it will become compulsory for your business.
Find out more about Making Tax Digital:
Today, only 11% percent of VAT returns are filed using software. You need to decide about your accounting software soon to avoid any potential complications that could arise from upgrading or migrating your software. Remember, the use of technology is compulsory.
Bear in mind that it will be far easier to use online accounting software to desktop software is not typically able to submit tax online. By making tax digital for businesses, HMRC requires you to submit returns online and it will be far easier to use online accounting software.
Donna Torres is the director of small business at Xero UK. Having held previous management positions at a variety of product companies, Donna joined Xero in 2014 and has been part of Xero's growth from its early stages in the UK.
Donna believes that the biggest challenge facing small businesses today is HMRC's Making Tax Digital for VAT initiative, alongside the impact of late payments on cash flow both of which Xero is supporting SMBs with through its technology.
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