Making Tax Digital: What you need to know for your business

The tax world is changing. No longer will businesses report their tax affairs once a year. Quarterly reporting – starting with VAT – will become mandatory from April 2019 for all VAT-registered organisations.

While Making Tax Digital (MTD) indicates a significant change, many mid-market and larger businesses already file their VAT every three months. But now they’ll need to record transactions digitally too – and that will require MTD-compliant accounting software.

The good news is, it will save paper and paperwork, make the quarterly process more manageable, and you’ll have more of an accurate reflection of your tax affairs, with less likelihood of errors occurring.  Using the right MTD accounting software, it will help increase productivity and performance for your business.

Why MTD came about

HMRC introduced MTD due to substantial tax losses through a clerical error, carelessness, legal interpretation, insolvency, avoidance, and other criminal activity. The financial drain is significant:

‘The tax gap is estimated to be £33 billion, which is 5.7% of tax liabilities.’

The efforts move to digitised tax was introduced (starting with VAT and later to include corporation tax and income tax). As a result, every business will have a digital account, providing the ability to check tax affairs in real time.

Information from banks, building societies, and other government departments will flow into this digital account, cutting down on duplication of effort and the rekeying of data. All that’s needed is to check the data is correct, provide HMRC with any additional information if requested and file the VAT submission before the deadline each quarter.

 When does MTD come into force?

April 2019 – Mandatory VAT reporting (VAT-registered businesses above VAT threshold)

April 2020 – Mandatory income/corporation tax submissions*

* This is the earliest date that it’s expected that all over taxes will require digital submission

No doubt you’ll have questions about MTD. Here are some answers to the most frequent ones:

 I file quarterly, does MTD apply to me?

Yes, it does. From April 2019, MTD will be mandatory for all businesses above the VAT-threshold. This means you’ll be required to keep digital records as well as file your VAT digitally to HMRC every three months through compliant accounting software like BTCHub. You’ll also need to check that the information that HMRC holds on your business is accurate.

Will I have to change my accounting software?

That depends. You should speak to your existing accounting software provider to ensure that they’re going to be MTD-compliant in time. Also, MTD is the perfect opportunity to review your accounting software to see if it still meets your business needs and your future aspirations. With the global trend towards business and finance being transacted digitally, you’d be advised to review your strategic requirements – and how accounting software could help to underpin your growth plans, as well as general compliance.

Can I use Excel?

HMRC has confirmed that spreadsheets can be used, “The spreadsheet must be able to prepare the VAT return figures which can then be automatically transferred into HMRC’s system via an API or bridging software.”

While this will be welcome for some, mid-sized and larger organisation would be better speaking to their existing accounting software provider or go to market for a new provider using MTD as an opportunity to review broader business processes and to look at how greater efficiency and productivity gains can be created across the business. It should be seen as a strategic opportunity and not merely a compliance issue – simply using Excel will not resolve issues you may already have around rekeying, duplication of work and manual error.

 Who else needs to be involved?

You should discuss this with your company as well as the rest of your finance team, or at least the person who’ll ultimately be responsible for making sure your taxes are filed every quarter.

 Will MTD increase our workload?

Not at all, it should give you more time. You won’t need to manually process your tax return once a quarter, because it will be done digitally. You need to check the information is correct. HMRC is receiving data from other parties; you should find you need to provide them with fewer data overall. Yes, there may be times they request specific data or details but not often.

 Will I need to retrain?

Apart from ensuring that you and everyone who is part of the MTD process, understand how to process the business’ tax information electronically and the need to keep digital records, it should be plain sailing. Businesses above the VAT threshold are used to filing their taxes quarterly in any case. It’s the digital element that’s new, so the systems and processes need to be in place to support this.

For more Information 

BTCSoftware’s MTD Solution can be purchased as a standalone product for £250 (+VAT) for an annual licence. Take a look at BTCSoftware’s Solution Suite.

Taking just a matter of minutes to set up, it comes with unlimited free support from our friendly UK-based team. BTCSoftware’s MTD Solution is available to buy and is approved by HMRC.  You can now book a demo or order by contacting the sales team at sales@btcsoftware.co.uk or t 0345 241 5030.

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