Making Tax Digital: what your business needs to know
Is your business ready for Making Tax Digital? In the near future, you’ll need to move your accounting and tax returns over to a purely digital, online way of working – and for many businesses, that’s going to mean some big changes to their accounts system.
Making Tax Digital has been a big topic of discussion in accounting circles for the past couple of years. But if you’re a business owner, CEO or FD, what does Making Tax Digital actually mean for you, your business and the way you manage your finances?
We’ve pulled together the key things you need to know about the move to digital tax accounts, so you can start planning ahead.
What is Making Tax Digital?
Making Tax Digital (or ‘MTD’ for short) is the Government’s initiative for making it easier to manage your tax, using the latest in online digital technology.
The key drivers behind this move to digital are to improve the access HMRC has to businesses’ financial data, reduce the errors currently made when businesses submit their tax returns and, by doing so, bring in an estimated extra £8bn in tax revenues to HMRC. This is explained in the most recent MTD policy document:
“The majority of [HMRC] customers want to get their tax right but the latest tax gap figures (2014 to 2015) show too many find this hard, with a cost to the Exchequer of over £8 billion a year due to avoidable taxpayer mistakes. In 2014 to 2015 over £3.5 billion of revenue was lost due to these mistakes in VAT returns alone.”
What does MTD means for my business?
All sounds great so far, right? There will be less paperwork, less filling out of forms and the whole process of getting your tax done could be automated and carried out in real-time.
But for MTD to work, it means every freelancer, every small business and every corporation in the UK having digital accounting software in place – not to mention every accountancy firm in the country also having a similar online accounting software platform at the heart of the practice.
18% of UK accountants are still using paper ledgers, according to recent research commissioned by the team at Xero online software. And if accountants are still using paper-based systems to work out accounts and tax, this doesn’t bode well for creating a UK tax system that’s based entirely in the digital space.
In short, your business needs to start thinking very seriously about finding an accountant and an accounting system that meets the digital requirements of MTD.
How do I get ready for MTD?
So, if you’re going to be digital ready by 2019 (the initial deadline for VAT-registered businesses with turnover above the threshold), what are the key MTD changes and updates you’ll need to action as a business?
Here are four key steps to action:
- Find an accountant who understands digital – if your current accountant is still using paper files and out-of-date desktop accounting software, it’s time to change advisers. Find an accountant who’s tech-savvy and proactive about getting your business MTD-ready.
- Move to cloud accounting software – switch your finance systems over to cloud accounting. Systems like Xero online accounting allow you to manage your finances in the cloud, and will be compatible with HMRC’s digital systems.
- Streamline your bookkeeping process – plugging a smart bookkeeping app, like Receipt Bank, into your digital accounting system will keep your accounting up to date, all your receipts and documents stored in the cloud and your tax data up to date.
- Keep a regular eye on your tax – instead of waiting until year-end to think about tax, have regular monthly conversations with your accountant about your tax position, what’s owed and where there’s potential to claim reliefs to save money.
With these four key actions taken care of, you’ll be in a far better position once digital tax accounts become a mandatory requirement for your business.
What are the timescales for the MTD roll-out?
The big question you’ll no doubt be asking is ‘When does Making Tax Digital kick in?’. And if you’re already a VAT registered business with a turnover above the VAT threshold, the answer is ‘in less than 18 months!’.
These are the main milestones for the revised MTD timetable:
We’ll help you get digital-ready
These deadlines will come around faster than you think, so it’s important for your business to plan ahead and get your financial systems ready for the MTD changes.
You’ll also need to register and get a Government Gateway account and, eventually, have your DVLA records, council information and other information all stored there – with two-tier identification becoming compulsory to access your account.
If you’re looking to switch to a modern accountant and the benefits of working in the cloud, we can help you make that transition as smooth and seamless as possible. We’re a Xero partner, and work exclusively in the cloud to help our clients manage their finances and keep their tax management and planning working for their business.
With only only 18 months until quarterly digital VAT returns are mandatory for VAT registered businesses that meet the VAT threshold, it’s important to start planning now for the move to digital – so come and talk to us early so we can help you make that switch.
Find out more in this Making Tax Digital guide from Xero
Who are FD Works?
The FD Works team of accountants are based in Bristol and Bath. We work ambitious startups, growing scaleups and established businesses throughout Bristol and Bath.
We’ll get you ready for Making Tax Digital
Talk to us about moving to a digital accounting system