Prepare for Making Tax Digital

Making Tax Digital (MTD) marks the end of paper record-keeping for millions of businesses and self-employed professionals in the UK. If you have a VAT-registered business, you need to prepare for Making Tax Digital by 1st April 2019.

The MTD VAT service is mandatory and will require all VAT-registered businesses to take part from April 2019. Regardless if you already have an accountant or software service in place, you should be aware of the changes in order to prepare for Making Tax Digital.

What’s happening in April 2019?

From 1st April 2019, businesses which are registered for VAT and that have a VAT taxable turnover of over £85,000 per annum must complete and keep digital VAT records. This will require you to have an MTD-compatible service or software in place in order to comply with digital tax recordkeeping.

If your business’ VAT taxable turnover is below the VAT threshold of £85,000 you will not have to complete digital recordkeeping from this date, but you can choose to do so voluntarily.

You will also need to file your quarterly VAT Returns via your accountant or using software that is compatible with Making Tax Digital.

What VAT records will need to be kept digitally?

There are specific records that must be kept digitally in MTD-friendly software:

  • Your business’ name
  • The address of your business
  • Your business’ VAT registration number
  • Data from invoices received by the business including
    • Time of supply/service (the date you send a VAT invoice or, for cash accounting, when you receive payment for supply)
    • Value of the supply/service (net value excluding VAT)
    • VAT rate charged

You will also need to keep digital VAT records on services or supply you receive from other businesses. You will only need to keep VAT-related records digitally when you need to record them on a VAT Return. More information has been provided on a government VAT Notice.

VAT can quickly get very complicated, especially to those new to running a business or who don’t have time to complete their own administration. Hiring an accountant or using a straightforward software package can solve this issue.

To prepare for Making Tax Digital it’s prudent to start keeping your records digitally in advance of the 1st of April 2019 if your business will be required to comply.

How will Churchill Knight prepare for Making Tax Digital?

Our accounting system is already equipped to handle Making Tax Digital requirements; all of our clients’ businesses will be compliant with MTD for both VAT and Income Tax in advance of deadlines.

What else is changing for MTD?

Perhaps the biggest change for businesses will be when Making Tax Digital covers Income Tax and National Insurance Contributions (NICs).

The government is currently running public beta testing for MTD Income Tax Self Assessments. When this is rolled out businesses and individual taxpayers will be required to record their income and expenses in MTD compliant software, or use an accountant who is MTD compliant.

It will also require you to send quarterly income tax updates to HMRC, and send a final report at the end of your business’ accounting period to confirm the year’s income and expenses. This will show you the income tax you will be due to pay.

According to tax.org.uk: “the government have stated that they will not widen the scope of MTD beyond VAT before the system has been shown to work”, which is good news if you are worried about quarterly income tax reporting.

Hiring an accountant vs using software for MTD

You have plenty of time to prepare for Making Tax Digital, however you need to consider if you will use an accountant vs software for your business:

Accountant vs Software
  • Accountants such as Churchill Knight adjust their practice in line with changes to legislation, ensuring that you are already prepared for MTD
  • Accountants can cost more than a software package, however the peace of mind you receive is priceless
  • There are accountancy packages available that require minimal administration on your behalf
  • Accountants are experts in their field and can advise you how to legally save on tax
  • There are many different types of accountants in the UK, and you should choose the best for you that will suit your circumstances and requirements for MTD
  • There is a small list of software providers who are currently developing processes to fall in line with MTD; you will have to choose a software that is proven to be MTD compliant
  • Accounting software is cost-efficient and easy to use, but you still have to complete the admin yourself
  • Using a software system leaves you more open to errors if you don’t input the correct information or get confused during the process
  • Like accountants, there are many software packages to choose from and you should do your research to choose the best package for you

 

 

Still torn over using an accountant vs software? Read our blog comparison ‘Software versus accountant – which is the better option for me?‘

Questions?

If you have questions about Making Tax Digital, please leave a comment on our blog.

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