Making Tax Digital: What You Need to Know

In cloud accounting, online accounting, xero by Rebecca ReidLeave a Comment

As of April 2019, the way you do tax is changing. HMRC are rolling out a new initiative to make the UK tax system more efficient. Here we’ve outlined the basics of what Making Tax Digital is, and we’ll walk you through the steps to ensure your business is ready for the April deadline.

The purpose of Making Tax Digital is to reduce paper records and streamline the accounting and VAT return process. In short, it will take the hassle away from those looming VAT return deadlines—no more frantically dashing to find paper receipts, files and spreadsheets. As of next spring, you can finally say goodbye to paper accounting and manual records. Having your records online and all in one place will make those VAT returns a breeze.

To comply with Making Tax Digital, as of 1st April 2019, businesses above the VAT threshold of £85K must keep digital records and submit electronic tax returns using MTD compatible software such as Xero. This includes: sole traders, partnerships, limited companies, non-UK businesses registered for UK VAT, trusts and charities which are all above the VAT threshold. (The VAT threshold is based on your VAT taxable turnover, which is the total value of everything you sell or supply that isn’t VAT exempt.) If your business is below the VAT threshold, you don’t need to digitise your records for the April deadline, but you can choose to if you want to.

If you’re above the VAT threshold, you’ll submit VAT returns quarterly instead of annually. Plus, quarterly updates will be automatically generated, giving you more insight into the numbers, which will help with forecasting and planning ahead for your business. It’s a win-win!

So, what do I need to do before 1st April 2019?

1. Go Digital

If your business is above the VAT threshold of £85k, make sure you’re using compatable online software before the deadline. As of April, paper records will no longer meet HMRC’s legal requirements, so make sure you give yourself plenty of time to digitise your accounts for the spring deadline.

2. Choose your Accounting Software

If you’re above the VAT threshold and you’re not already using accounting software, you’ll need to set this up before the April deadline.

There’s no one size fits all for accounting software- different software will suit the needs of different businesses, and your own personal preferences are important, too. If you’re unsure about what online software to use, check out our handy little guide.

When deciding what software to use, we would recommend choosing a cloud-based, online platform such as Xero as opposed to desktop software. This makes life a lot easier as tax returns will be submitted online anyway as of April 1st.

Just make sure your accounting software does the following:

  • Automatically calculates owed tax such as VAT and payroll tax.
  • Updates transactions daily.
  • Creates digital records from paper receipts photographed on your mobile.

If you’re already using MTD compatible software before the deadline, you’re already compliant with Making Tax Digital. Just keep a hold of your paper records from the past 6 years. There’s no need to digitise these, as long as you have hard copies. If you can, it can also be helpful to get into the habit of digitising your future records in the months before the deadline. That way, you’ll be familiar with the process by April.

3. If in doubt, speak to your accountant.

A proactive accountant will be more than happy to answer any of your VAT-related questions. They’ll point you in the right direction, help you choose the best software for your business, and advise you on the next steps for digitising your records.

At Ashton McGill, we regularly host Coffee & Accounts sessions where you can get the answers you need to those nagging accounting questions over some delicious coffee and cake. Our drop-ins are free and open to anyone, even if you’ve already got an accountant. To find out more about our drop-ins and to book your spot, click here.

Alternatively, if you have any other queries, ping us an email or DM us over on Twitter or Instagram. And if you’re a client of ours, message us over on Slack and one of the AM team will get back to you that same day.

Tax doesn’t need to be taxing!

 

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