Prepare Small Businesses for Making Tax Digital
What is “Making Tax Digital”
Making tax digital is an HMRC initiative, aiming to transform the UK tax system into one of the most digitally advanced tax systems in the world. What is means for small businesses is storing and submitting all your tax information together in online by MTD-compatible software. The change will make it easier to file tax correctly, without any delay. MTD has been mandated to reduce the avoidable mistakes that currently account for £8bn in uncollected tax each year. Making Tax Digital will change the way tax is filed and will change the expectations of your clients. It is your job to ensure all clients are aware of the changes and should be encouraged to go digital regardless of if they are above the VAT threshold.
HMRC Role in Making Tax Digital
As per the second bill of 2017, HMRC made changes to MTD and are as follows:
Businesses with a turnover above VAT threshold of £85000 will have to digitally store their records.
MTD for Vat will be mandated 1 April 2019.
Businesses will not be required to digitally store and submit their information for other quarterly taxes until April 2020.
Making Tax Digital (MTD): What will happen?
The MTD transformation project is starting with MTD for VAT and will be mandated 1 April 2019.
Once MTD for VAT goes live, HMRC will begin finalizing the details for MTD for income tax & corporation tax but they will not be introduced before April 2020.
To submit returns to HMRC, businesses and organizations will be required to use a compatible software product. Through HMRC’S application program interface (API), software will easily submit the required information directly to HMRC.
Paper records will not serve the purpose as they cease to meet the legal requirements but spreadsheets can be used with correct bridging software.
MTD (Making Tax Digital) Timeline: Who Will be Affected and When?
The private MTD for VAT software pilot started in April 2018 & moved to the public beta version in October 2018.
All VAT registered businesses with taxable turnover above the VAT threshold (£85000) are required to maintain their accounting records and file their VAT returns from the first VAT period starting from 1 April 2019.
HMRC tried to apply MTD for income tax as early as possible but it has been delayed by the government.
HMRC still expects MTD for income tax to become mandatory but the govt. made a statement that it is not possible until at least April 2020.
The businesses & organizations below this VAT threshold can continue to maintain their accounting records and can file VAT returns in the same way as they were doing previously.
Benefits of MTD (Making Tax Digital)
There is a lot of discussion, especially within the accounting industry about whether MTD will be a positive or negative. We believe that MTD is a good and necessary advancement of the UK tax system. Here are a few reasons why:
It will save valuable time of businesses, accountants & HMRC.
The recording of tax will be more accurate as there will be a smaller chance of errors, miscalculations and fraud.
With the use of the right compatible software, filing tax returns will be easy.
MTD will improve the quality of record keeping.
With a cloud based solution, it will increase the efficiency of managing the business.
It will save time when gathering & inputting data.
How to Prepare Small Businesses for Making Tax Digital
According to a recent survey, approximately 75% of clients know nothing about MTD. To make them aware about of the changes MTD will cause, you must first educate your staff
Once your staff are knowledgeable, encourage them to make MTD a part of their conversation when they communicate with clients.
Add an MTD reminder in every e-mail or letter you are sending to your clients. It must make them aware of the April 2019 deadline.
Calculate how many clients are under & above the £85000 VAT threshold so that you can prioritise the clients that need to be MTD-compliant.
Calculate how many months remain until April 2019 so you can plan for making your clients MTD compatible.
To make this big change possible, advise your clients by organizing special meetings & seminars.
Provide clients with proper training material & documents to teach how MTD will affect them.
Tell clients below the threshold of the benefits that MTD-compliant software and encourage them to adopt the new digital method.
Early adoption of transforming the paper tax records (tax information in the form of manual figures, excel spreadsheets) into a digital form will make them more familiar with the software.
Making tax digital is a great initiative taken by HMRC. They are taking the necessary steps to improve the UK tax system from paper and spreadsheet records into a digitally advanced tax system. Once implemented, it will benefit businesses, accountants and HMRC. It will take less time, to submit a higher standard of work, which will lead to fewer avoidable mistakes and HMRC collecting a more accurate amount of tax.
Want to take more information and guidance about how to prepare your business for MTD? Click on Nomisma MTD guide link – Guides for Accountants