Countdown to Making Tax Digital: 5 steps you MUST take to comply
Whether you like it or not, the Making Tax Digital (MTD) deadline is almost here – and all VAT-registered businesses with a turnover of more than £85,000 WILL be affected by it.
From April 2019, the law will mean that these businesses must:
- Keep digital books and records
- Set up a digital tax account with HMRC
- Submit digital VAT records via MTD-compatible software
Clearly, these significant changes will impose an increased administrative burden on a wide range of SMEs.
At Northern Accountants, we’re helping to guide our clients through every step of this critical change. Hence, if you’d like our assistance, please get in touch or call 0113 2189552 – we’ll be happy to take care of everything on your behalf.
If you’d rather go it alone, below are the 5 essential steps you MUST take to be compliant:
Step 1 – Forget about filing paper records
If you currently maintain financial records on any form of paper, you’re living in the darks ages and need to stop now! From April 2019, the use of spreadsheets or any manual book-keeping system will not be an option for VAT-registered businesses with £85,000 turnover.
Step 2- Connect Now
Whether you choose to use a PC, laptop, tablet, or smartphone, you’re going to need to get online and input data electronically to comply with Making Tax Digital. HMRC aims to reduce tax errors and simplify audits with software that automatically detects mistakes and inconsistencies.
Step 3 – Sign up for a digital tax account
Every business, charity, or partnership must create a digital tax account with HMRC, where all taxpayer details are stored in one place. For MTD compliance, businesses must submit financial data quarterly, with banks and pension providers automatically uploading information.
Step 4 – Choose MTD-compliant software
To comply with MTD, some form of cloud accounting package will be needed to keep records in a digital format and submit them to HMRC. At the minute, the main players are Sage, Quickbooks, FreeAgent and Xero (which we highly recommend) but there are plenty of others available – simply select one that’s best suited to your business and accounting needs.
Step 5 – Start filing your VAT online
HMRC will no longer allow you to manually enter VAT figures into the portal once the MTD deadline arrives. So, the sooner you start filing VAT returns online, directly through your accounting software, the better!
The Making Tax Digital Timeline
Phase 1 – 1st April 2019: VAT goes digital for VAT-registered businesses with a taxable turnover above the £85,000 VAT threshold. VAT-registered businesses below the threshold continue to operate as normal.
Phase 2 – 1st April 2020: VAT goes digital for VAT-registered businesses with a taxable turnover below the £85,000 VAT threshold.
Phase 3 – HMRC proposes that on 1st April 2020, all businesses, regardless of VAT registration, will go digital for income and corporation tax.
Future tax changes and the risks of doing nothing – take action now!
Companies unable to comply with the new MTD rules risk financial penalties and business disruption typically linked to HMRC non-compliance.
The April 2019 MTD deadline impacts 2.5m larger businesses, but smaller businesses will soon need to comply.
According to The Budget 2018, the existing £85,000 VAT threshold will remain in place until at least April 2022. HMRC could introduce MTD for income tax and corporation tax before then, with April 2020 as the earliest start date.
Put simply, now is the time for SMEs to act. We are not expecting any further delays to MTD. Failure to comply could seriously disrupt your business.
Should you need any help, please don’t hesitate to call us on 0113 2189552 to arrange a free MTD assessment.
