Earlier this month, a Parliamentary committee report revealed that around 400,000 businesses are unaware that they must legally begin filing their VAT returns online from April 2019. This is due to HMRC’s ‘Making Tax Digital’ initiative, that will see approximately 1.2m businesses with turnover above £85,000 expected to use the new digital system. However, with 40 per cent of those companies having never heard of the policy, clearly support is needed.
What is Making Tax Digital?
Making Tax Digital (MTD) is part of the Government’s goal to simplify the complexities of tax for sole traders and businesses, while building one of the most “digitally advanced tax administrations in the world.” It’s also a direct response to figures that show HMRC currently loses approximatebusly £9bn every year to avoidable tax errors.
The legislation, which comes into effect on 1st April 2019, will make it a legal requirement for all businesses above the VAT threshold to keep digital accounting records using software compatible with HMRC’s submission platform. This means that not only will this mean paper tax returns will become a thing of the past, but trusted digital spreadsheets will also be non-compliant.
How to comply with MTD
If your finances are largely managed by an accountant, it’s very likely they’ve already begun working on meeting the compliance deadline for you – although if you’re yet to be contacted by your accountant to discuss this, it’s worth doing so proactively to ensure everything is on track. The majority of accountants already use accountancy software for bookkeeping, even if you’re used to sharing physical tax returns or even bags of receipts for them to work through. This will soon change though, as SMEs and large enterprise will need to get in the habit of keeping digital records themselves to complement the work carried out by their accountant.
The road to compliance is a more difficult one for SMEs without an accountant though. Without a third party to remove some of the burden of MTD, business owners will need to invest in compliant accountancy software to manage their finances. One of the biggest misconceptions of MTD is that free software will be provided to simplify compliance. As with GDPR earlier this year, this ISN’T the case.
Unfortunately, in many cases this will be a significant investment which some SMEs that only just qualify for MTD may find difficult to stomach. Free or low cost software with limited functionality is already becoming available, but for those who want to embrace MTD to the fullest, prices may reach the thousands.
If you’re one of the many who are reading this and hearing about Making Tax Digital for the first time, we’re here to help. We understand the pressures of running a business and the seemingly constant barrage of compliance. Whether it’s financial support you need to cover the cost of compliant software, or further advice on next steps, we’re always here to help.