Making tax digital (MTD) is the name for the government’s ambitious plan to move tax records and reporting online. It aims to make collecting tax more accurate and help businesses get their tax right first time.
Businesses and individuals will have a digital account showing all their tax information in a single place. This will give you a better understanding of how much tax you need to pay.
It’s a huge transformation for both businesses and HMRC, which is why the government is rolling out the process gradually.
First up are VAT-registered businesses who, from April 2019, will need to:
- keep digital records for VAT
- send VAT returns to HMRC using digital software.
Under the current timetable, digital records and quarterly reporting for income tax, national insurance and corporation tax will be introduced from 2020 (initially on a voluntary basis).
Although it may be several years until MTD affects your business, now is the time to embrace digital technology so you’re confident when the time comes.
Making tax digital software
You’ll need to send information in a way that’s compatible with HMRC’s systems.
There are a couple of ways to do this:
Your accounting software provider automatically updates your product
This is the best situation to be in as you don’t have to do anything and may not incur any additional costs.
Many cloud accounting software providers are currently working on ensuring their products are compatible with MTD.
The government has a list of software suppliers that are compatible with HMRC – but you’ll need to check that these will work for MTD.
Link spreadsheets with HMRC
Don’t worry if you don’t use accounting software – you may be able to keep using spreadsheets or other in-house accounting systems.
To do this you’ll need to use an extra piece of software to link your existing system with HMRC (the technical name for this is an API).
Set up a completely new system
You’ll need to do this if you’re keeping manual or paper records. This may seem daunting but it is a great opportunity to make sure you are prepared for MTD well in advance.
Benefits of digital accounting software beyond making tax digital
We’re big fans of cloud technology (especially Xero) because the advantages go far beyond being MTD compliant.
Using digital accounting means:
- reports are faster and easier to prepare so you can check your finances easily
- your records are more accurate compared to manual processes
- viewing your accounts regularly gives more opportunities to understand your business better and deliver the best tax and business advice
- tax is automatically calculated
- you can integrate bank data giving a more complete picture of your finances
- access your accounts online whenever and wherever you are
- multiple people can work from a single set of data meaning the end of version control problems.
Want to talk?
MTD is not just another obligation. It’s an opportunity to keep up to speed on income, expenses and profit – all of which will help you make better business decisions.
Get in touch to see how we can help make MTD a change for the better.