Making Tax Digital, according to the government, is their plan to make it easier for businesses and individuals to get their taxes right. HMRC want to be one of the most digitally advanced administrations. But what does it actually mean for you and your business?
Firstly some key dates
- April 2019 : MTD for VAT (if your turnover is greater than £85,000)
- April 2022 : MTD for VAT (for all businesses)
- April 2023 : MTD for landlords and the self-employed
- 2026 : MTD for Corporation Tax
What do you have to do?
There are two main requirements and a bit of glue to link them together. Firstly, you must maintain digital accounting records. This means no more paper records, but it also means no more chaotic Excel spreadsheets. The easiest way to meet this requirement is to ensure that either you or your accountant maintain your accounting records on a system like Xero. If you use Xero, you’ll meet all of the MTD requirements quite easily.
Secondly, you must use compatible software to file and update tax returns with HMRC. Today you are able to log on to the HMRC website and file personal tax and VAT returns. Once Making Tax Digital goes live for each tax, the only way to file a tax return is through using the right software, such as Xero.
The ‘glue’ requirement is about having digital links in place. Underlying accounting records have to be digitally linked to the tax return. No more Cut and Paste of data between different files. These links must be fully automated.
Will this help me?
Without a doubt, change is always painful. If you currently maintain records in Excel and use the HMRC website to file returns then you will have to change your process. But this change is a huge opportunity to save time. Nobody wants to be spending unnecessary time on accounts and taxes. By making the shift to the best digital software, set up in the right way, much of the accounting process can be automated at relatively little cost.
What automation can I hope to achieve?
If you find yourself doing repetitive tasks, with the right software and set up most of these tasks can be automated. Bank accounts can be linked to accounting systems like Xero to ensure that transactions are automatically imported. Rules can be set up to process recurring items such as bank charges. Invoices can be emailed to special email addresses, which then automatically process the invoice and complete all the records. Reports can be run that highlight where there might be errors with the VAT records. Tax returns can be filed at the touch of a button.
If your accounting and tax processes are out of date you can probably reduce the time spent by about 40%
How easy is the software to use?
For most people setting up Xero will require some support from their accountant. But once the software is set up, then the benefits very quickly emerge. Numbers just reconcile and data is always correct. You can start to use reports and analytics to actually understand and analyse your business. Accounting shifts from being a chore to becoming a tool that helps you grow your business through insight into your data.
Free Making Tax Digital
If you want to ensure that your business is MTD compliant, or you just want a brief chat to understand the options and latest thinking, then please get in contact with Mounthurst Tax and Accounting.
0800 878 9020