The first phase of Making Tax Digital went live on 1st April 2019 and there are still businesses struggling to get to grips with the new requirements it brings. It’s important to have a clear understanding of how MTD will affect your business and the next steps you need to take.
Here we have put together 10 frequently asked questions to allow you to have a better understanding and feel more prepared for the changes.
1. What is Making Tax Digital?
Making Tax Digital is a UK government initiative designed to ensure a more timely and accurate recording and submission of VAT returns.
2. Who does it affect?
Currently MTD only affects VAT registered businesses with a turnover above the current VAT registration threshold (currently £85,000).
3. Why are we ‘Making Tax Digital’?
Making Tax Digital is a key part of the government’s plans to make it easier for individuals and businesses to get their tax right and keep on top of their affairs.
HMRC’s ambition is to become one of the most digitally advanced tax administrations in the world. Making Tax Digital is making fundamental changes to the way the tax system works – transforming tax administration so that it is:
- more effective
- more efficient
- easier for taxpayers to get their tax right
4. How can Making Tax Digital benefit my business?
Although Making Tax Digital may be a forced change it may also be an opportunity to consider what would benefit your business. Software will help you to stay on top of record keeping, allowing you to understand better how your business is performing.
Key benefits can include:
· Simplifying book-keeping
· Knowing where you stand when it comes to who owes you money
· Knowing potential tax and VAT liabilities as soon as possible
· Work online collaboratively with an accountant or book keeper
· Plan and budget more effectively
5. Can I still keep manual records and just record totals digitally?
No. If your business is still using cash books, excel spreadsheets or just manually adding up entries on bank statements, MTD will bring major changes to how you keep and maintain your books and records. The rules state that you must use functional compatible software that meets HMRC's requirements. Get in touch with us if you need help.
6. Do I have to use digital software?
If your business is affected by MTD, you will be required to comply with HMRC's regulations. So, if you are not currently using compatible software, you will need to purchase this, or for a period of time may be able to use bridging software.
Want to check your software is compliant? View HMRC's list of compatible software here.
Your accountant will be able to help and advise you with online software and in most cases will save you having to purchase the software yourself.
7. What information do I need to keep digitally?
You will need to comply with HMRC's regulations for digital record keeping and provide VAT return information.
This means using your software to:
- Record business information and records of services / products supplied or received, such as online invoices and sales data
- Send quarterly tax data to HMRC
8. Does MTD change the deadlines for VAT submissions?
No, the VAT deadlines, the payment deadlines and the frequency with which businesses have to file VAT returns has not changed and remain the same as before.
9. What happens if I don't comply? Are there any penalties?
Points are given for every late report. Once the amount of points breaches a threshold (which can vary) a penalty will be charged. Points can expire if the taxpayer complies for a period of time after the penalty.
10. I still don't understand Making Tax Digital - what should I do?
Get in touch. Our experts will be able to guide you through Making Tax Digital.
With a dedicated digital accounting team, we can help you make the switch to digital accounting that will not only benefit your business but will also comply with the new MTD regulations.