What is “Making Tax Digital”?
Making Tax Digital (MTD) is a government initiative to modernise HMRC’s tax system, with the aim of making the whole process of administrating tax simpler and more efficient. All of your tax information will be in one place, your digital account. You will be able to pay tax based on your business activity during the year. You can upload and update your tax account in real time.
When is all this happening?
MTD starts with businesses with turnover above the VAT threshold limits (currently £85,000) in April 2019. The first VAT period to which MTD applies will be the first one commencing on or after 1 April 2019. Those affected will be required to keep digital records for VAT purposes.
In 2020 it is most likely all other businesses will have to comply with the same rules.
What do I have to do?
You will need to ensure that MTD compatible software is being used to maintain the company’s records. This could mean a move away from spreadsheets and onto Cloud based accounting software. Popular compatible Cloud based software includes Xero, KashFlow, FreeAgent, Sage and QuickBooks. A list of all compatible software can be found on HMRC’s website.
If the software you already use is on the list then of course there is no need to change.
What software do you recommend?
We recommend using either Xero or KashFlow. We are a Xero Certified Advisor and KashFlow Gold Partner. We can set up a free trial on these systems and arrange the subscription for you.
When to change?
Although MTD does not start until 1 April 2019 we would recommend changing system from the start of your next accounting period. This will then mean that all your records for that accounting period are kept in the same place.
Can I still use a spreadsheet for keeping my business records?
The practical answer is no. We feel that using Cloud based accounting software is a much better solution and will help to future proof your business from other changes.
Decide on the system you will be using. Contact us so we can advise on how best to transition and get started.