The overall aim of Making Tax Digital (MTD) is that eventually everyone will maintain and file their tax information in digital format. Specifically for businesses, the plan is that business income and expenses will be filed to HMRC on a quarterly basis, with an annual end of year submission made containing final accounts and any other taxable income.
In July 2017, the Government changed their original timings following considerable pressure from all those involved arguing that the timescales were simply unrealistic. The outcome of this was that digital record-keeping would only be necessary for VAT purposes, for those above the VAT threshold, from April 2019. The rest is still set to happen, but not until at least 2020.
How will this impact me?
Whilst currently most businesses submit their VAT returns via HMRC’s online portal, from April 2019 this will no longer be possible for those above the VAT threshold (currently £85,000). HMRC is demanding that commercial software will be used both to record their information, and to make their submissions. HMRC believe that by interlinking the processes, there will be a much lower margin for error.
It has been confirmed that spreadsheets will qualify as digital records. HMRC anticipates that software will be developed to enable VAT returns to be filed from data held on spreadsheets, however such products have not hit the market yet and HMRC have confirmed that they will not be producing it themselves.
Therefore, for those businesses above the VAT threshold, there is a lot to consider going forward, and clearly utilising new software will also involve a further financial outlay. Any software applied will need to be MTD compliant and be in place and running smoothly in time for the April 2019 deadline.
The Way Forward
Here at Hippey Accountancy Services we have been preparing for these changes, bringing our clients across to cloud-based software which is MTD compliant. However, transferring old bookkeeping systems onto cloud products such as Receipt Bank and Xero provides more wide-reaching benefits than simply preparing for MTD. These products allow businesses to access a real-time view of their financial situation, whenever and wherever they need it. All the different aspects of a business can be linked, from sales invoices and expenses to live bank feeds and payrolls, thus producing a constantly updated picture of how the business is performing. With backups to the cloud, and automatic updates, there is no longer a need to buy or install updates, and the risk of losing valuable data is minimized.
Whilst MTD will only be affecting VAT records for those above the VAT threshold to begin with, it would be naïve to think that the rest will not be following suit sooner rather than later. We believe that advance preparation is key. Please do not hesitate to get in touch if you require assistance in this area for your business.