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GETTING READY FOR MAKING TAX DIGITAL

GETTING READY FOR MAKING TAX DIGITAL

The role of accountants is constantly changing. Whether its complying with new mandates or meeting the evolving expectations of clients, there is always new information to keep on top of.

Nomisma know that the days of small practices and sole-practitioners are taken up by providing services. Meaning that there is not a lot of time to explore possibilities for growth. With that in mind, we have created this page to share our guides on the latest and most important updates in the world of accounting.

We want to provide clear and informed advice on how you can keep up with the sector’s latest developments. So, we do all the hard work and create these guides that simplify the steps you need to take to improve your practice.

Making Tax Digital

Introduction to Making Tax Digital

  • Making Tax Digital (MTD) is HMRC’s mandate that aims to reduce the avoidable mistakes made when submitting tax returns.
  • MTD is mandated for the 1st April 2019.
  • All VAT-registered businesses over the £85,000 VAT threshold must submit their VAT returns to HMRC using accredited digital software.
  • Making Tax Digital (MTD) is HMRC’s mandate that aims to reduce the avoidable mistakes made when submitting tax returns.
  • Download our guides to keep up to date with everything you need to know about MTD.
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How will MTD affect accountants ?

How will Making Tax Digital (MTD) affect Small Practice Accountants in UK

HMRC has issued a mandate called ‘Making Tax Digital for VAT.’ The new regulations come into place on 1 April 2019.

Making Tax Digital (MTD) aims to reduce the £9 billion lost by the Exchequer through avoidable mistakes each year.

The mandate will affect all VAT-registered businesses with a revenue above the £85,000 VAT threshold. These businesses will be required to digitally store VAT records and submit their VAT returns to HMRC via MTD-compatible digital software.

MTD does not change VAT deadlines.

You must be MTD-compliant starting from your first VAT period that begins after 1 April 2019.

HMRC mandates are almost certain for other taxes but will not be exercised until April 2020 at the earliest.

Making Tax Digital (MTD): Can I still use Spreadsheets?

We have bad news for those loyal to spreadsheets. Their days are numbered.

Spreadsheets are simply not compatible with HMRC’s requirements.

It is possible that you could still use a spreadsheet for tasks not related to tax returns but it could present problems.

The spreadsheet becomes dangerous in complying with one half of MTD. Preserving digital records is not secure when using spreadsheets. It is very easy to alter the data in a spreadsheet and a simple mistake could mean you breach the law.

From 1 April 2019, HMRC is allowing a ‘soft landing’ period in which it is okay to copy and paste data from a spreadsheet to MTD-compatible software.

After the first 12 months, copy and pasting from spreadsheets will not be permitted.

Making Tax Digital (MTD): What software do I need?

If you are migrating to cloud accounting software for the first time then you must ensure it meets HMRC’s guidelines.

Your software must be able to:

  • Receive information from HMRC
  • Record and preserve digital records relating to VAT
  • Send information and returns from the preserved data to HMRC

Your virtual accounting software should cover all of this as standard.

If you use more than one accounting software provider then you must have a digital link. You must not manually copy and paste information between different software’s. It must be synchronized digitally.

Making Tax Digital (MTD): What is a digital link?

This only applies to those who have more than one software provider. Users of a complete accounting product like Nomisma don’t need to worry about this.

To be MTD-compatible, your software must be digitally linked. This creates what HMRC call a ‘digital journey’ for your VAT payments.

This must be in operation for all your finances when MTD for the other taxes is, most likely, mandated in 2020.

If you use a mobile app for bookkeeping and it automatically sends the date to your complete accounting software, then that is a digital link.

The link should be both automatic and digital.

Making Tax Digital (MTD): What if my client is beneath the threshold?

If your client is not VAT registered and has a turnover under the threshold, then they do not need to register for MTD.

If they are VAT registered and under the threshold, then you can choose whether to submit returns digitally or not. If you choose not to submit returns digitally then you must officially opt-out with HMRC.

If they are VAT registered and above the threshold but their future turnover falls below £85,000 then they must still comply with the MTD mandate. The only way they can avoid the mandate is to deregister from VAT.

Making Tax Digital (MTD): Is my client exempt?

Your client could be exempt from the MTD mandate if they meet the selected criteria from HMRC.

HMRC recognises that there is a small proportion of the population that genuinely cannot use digital tools and have agreed those who cannot use digital accounting software or apps for the following reasons will be exempt:

  • Religion
  • Remoteness of location
  • Age
  • Disability

Other reasons for being digitally excluded will be considered on an individual basis.

Charities will be exempt from MTD obligations. Trading subsidiaries of charities, whose goal is to raise money, are not exempt and must comply with the MTD mandate.

For me information on who is exempt from MTD, click here.

MTD: How do I get ready?

We wrote this guide to help manage your practice’s transition to MTD-compatible digital software.

While the long-term benefit of MTD is apparent, the short-term task of transitioning is difficult. Our guide helps you plan and implement your switch to MTD.

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Be sure to ask for a free trial at the end of your demo to take the software for a spin yourself!

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