HMRC has announced its plans to “Make Tax Digital”, and the first phase of the process will be introduced in April 2019
What does ‘Making Tax Digital’ mean?
Tax returns, including VAT returns are currently completed and filed online, and this project is hailed as the next step to make UK individual and business tax even more digital, and automated. HMRC will require businesses to use functional compatible software, such as cloud accounting software like Xero, Sage and QuickBooks to report income and expenses in as near real-time, as possible.
As at May 2018 HMRC confirms that small businesses can use spreadsheets to record tax information, but you will need bridging software to upload it and be linked digitally to HMRC.
VAT filing from April 2019
The first tax to be using the MTD process will be VAT, with companies, sole traders, partnerships etc. that meet the VAT threshold of £85,000 being required to submit their VAT returns digitally from April 2019. There will be a “soft landing” period of 12 months where no financial penalties will be issued as we all get used to complying with the changes.
Only accounting and bookkeeping software that is HMRC approved and on their list should be used and all the big names are expected to modify their software to comply with HMRC IT requirements.
Under the new digital tax regime businesses will be required to keep a digital record of all their sales broken down by the VAT liability they attract (zero-rated, standard-rated etc.). They will also have to break down the purchases they make by VAT and retain information about the adjustments made for reverse charges on imported services, car leasing and business entertainment.
There is currently no mandatory requirement to use bookkeeping scanning software but this may change in future. Most good cloud accounting systems have this functionality and when it comes to VAT returns having a scan of invoices to hand is a positive for business efficiency.
Potential Impact of MTD for Business
- Software – If you don’t use functional compatible software you may choose to change from spreadsheets Xero, Sage Cloud or QBO and pay the monthly subscription for these.
- More efficient businesses – It is expected that productivity will improve as all kinds of business owners make the move to online, digital accounting software with live bank feeds.
Are you ready for Making Tax Digital?
At Shaper Accountants we are helping businesses get ready for the new tax reporting requirements so if you have questions or need help please get in touch.
You can find out more information here.