We are living in a digital world – whether it’s social media, movie-streaming, food-delivery or shipping orders – there’s increasingly few areas of our lives that have not been changed by digital technology. Accountancy is no exception and as it once moved from pen and paper to computers, it is now moving further into the digital realm.
HMRC’s ambition is to become one of the most digitally advanced tax administrators in the world and with this ambition in mind they announced Making Tax Digital, coming into effect in April 2019 – which could spell the end of annual tax returns for millions. But what is Making Tax Digital exactly? What does it mean for your business and what do you need to do? We put all these questions and more to Olga Carter, Associate at Bulley Davey:
What is Making Tax Digital?
“Making Tax Digital (MTD) is the government’s initiative to modernise the tax system in order to make it more efficient and effective, while reducing the amount of human error that currently occurs with keeping records and submitting returns – inaccuracies on tax returns cost the government over £9 billion a year!
“The introduction in April 2019 may seem like some way off, but it really isn’t in the scheme of things. From that month all VAT registered businesses with a turnover above the VAT threshold of £85,000 will be required to use the Making Tax Digital system to meet their VAT obligations – although other businesses below that threshold can join the scheme voluntary.”
What does this mean for your average business?
“Where in the past with the modernisation of payroll, for example, businesses were given a basic software they could use; businesses required to meet the April 2019 deadline will need to invest in a MTD compliant software for keeping their records and to submit their VAT returns directly from it. At Bulley Davey we’re specialised in implementing and training people with this cloud-based software – and we are partnered with Xero and QuickBooks; two examples of the kind of software that businesses will have to invest in.
“This software shouldn’t break the bank – many of these systems have monthly subscription costs under £30 – and although there are some alternatives using spreadsheets which can be used, they are clunky and need to be very specifically organised and processed. If a cloud accounting software is properly implemented and you know how to get the best out of it, the benefits often far outweigh the costs – saving you time and energy that can be better invested elsewhere.”
What next steps should a business take?
“You have a year to prepare for this move, but the earlier you begin preparing, the better equipped you’ll be and the smoother the transition. The most convenient time to switch to a new accounting system is typically at the beginning of a new financial year, so ideally businesses owners should start thinking about this before the end of their current financial year, or soon after, which for many is around now!
“Do your research thoroughly – there are many different providers and unique packages to suit a business’s specific needs and demands, the one that everyone else is using may not be right for you. Seeking out support can also be helpful in saving you from the difficult legwork and training staff both in the initial transition and beyond.
“As I mentioned, at Bulley Davey we have a team of advisers who specialise in Making Tax Digital and cloud accounting software who can help with this kind of support.”
What does the future look like for MTD?
“This April 2019 deadline is just a first step in the government’s plans to roll out MTD across multiple areas of tax. In April 2020 (at the earliest) it’s expected that MTD will become mandatory for income tax and corporation tax (as appropriate) for all businesses – including landlords – with a turnover over the VAT threshold. In the very long run, it is expected that all businesses will need to be compliant with MTD.”
To find out more about Making Tax Digital or to talk to a specialist contact Olga on 01832 273150