How Does Your Business Comply With ’Making Tax Digital’?
The UK's tax administration system is being transformed by the 'Making Tax Digital' (MTD) regime. MTD is one of the biggest changes taking effect in 2019 which is set to impact self-employed businesses. This is a pivotal part of the governments plans for a fully digital HMRC to increase efficiency, allow for more effective governance and more user-friendly interface for both businesses and individuals.
So what are the new requirements, and how does your enterprise need to change to fall in line?
If your business has a taxable turnover of more than the VAT registration threshold (currently £85,000) you must keep your VAT records digitally and file returns online through a software compatible with HMRC's. This came into play in April and is designed to reduce the numbers of errors occurring which costs the Treasury in excess of £9 billion each year. Another benefit of this system is that it frees up entrepreneurs to focus on growing their businesses.
Businesses, regardless of turnover, can benefit from using software to keep digital records. Software not only helps the effective running of a business but also reduces avoidable errors in business records that can occur when manual calculations are performed, or information transposed by hand.
By keeping up to date digital records in real time, businesses are less likely to lose receipts and digital records can also reduce the risk of errors due to lost or incorrectly recorded invoices. Over time, nudges or prompts will be introduced into software which will help to eliminate common errors
So, if your business is turning over more than £85,000, you will need to comply with these rules from now on. If things get tough and this turnover dips, you must still comply with the scheme. If your turnover doesn't exceed this value then you're exempt, however you can opt in to MTD voluntarily.
Why might you be entirely exempt?
- Your enterprise is going through bankruptcy
- The use of digital systems are unfeasible due to user disability, inadequate online connections or other limitations
- The organisation is run entirely by practicing members of a religious group that do not permit the use of electronics
What does HMRC require?
In order to comply, you need to use a software that integrates with HMRC's; there is a listing of 250 compatible systems available at gov.uk - these packages run on multiple platforms including smartphones and desktops.
The data you need to have stored includes information about the supplies you receive and make, along with the VAT rates paid. If you currently store information such as this across various platforms, as long as each is compatible with HMRC's systems and is 'digitally linked' then you're in the clear.
Until March 2020, HMRC will allow for manual copying and pasting. After this date, only automated processes such as integration or file-sharing will be deemed MTD-compliant.
Some companies have designed 'spreadsheet bridging software' that will automatically feed the data from your spreadsheet to the new software. Generally, the advice being given to people who are looking to submit their own returns is to seek guidance from an accountant in the first place to make sure you've managed to get the right processes in place.
How do I go about signing up for MTD?
It's important to register at least one week before the return is due. On gov.uk, search for "sign up for making tax digital for VAT' and then complete with your Government Gateway user ID plus your business's registration details.
In true digital spirit, you will need to opt out of physical letters and into emails to receive your information.
Find out more about MTD here: