From April 2019, all VAT registered businesses are required to keep digital VAT business records and send returns using Making Tax Digital Software.
If your turnover is below the VAT threshold and you are, therefore, not VAT registered, you have until at least April 2020 to prepare for Making Tax Digital. However, you can still choose to start using digital software to record your accounts if you’d like to get ahead of the game.
What’s a ‘VAT registered business’?
In the UK, if you run a business with a taxable turnover over £85,000 – you are liable to pay VAT. As a VAT registered business, you charge VAT to your customers, and claim VAT back on goods and services purchased by your business. VAT stands for Value Added Tax.
What is Making Tax Digital software?
Software that is Making Tax Digital compatible includes digital programs that can store and submit your quarterly VAT returns for you. Due to the sometimes confusing nature of VAT and tax, programs that calculate your VAT obligations are incredibly popular. From April 2019, the use of these programs will be mandatory. Streamlining this system and getting everyone online means that there is a lot less admin for both the end-user (the VAT registered business) and HMRC.
Some popular examples of Making Tax Digital software including:
- Xero: One of the most popular bookkeeping and accounts programs. Many accountants favour Xero for making the complex, simple. It also allows for multiple users under each account – allowing you and your accountant to jointly reconcile, add and update your data.
- QuickBooks Online: Favoured by small businesses and those on-the-go. QuickBooks has a great app and is heralded by those who file numerous expenses.
Who is exempt from Making Tax Digital?
There are some exceptions to the new Making Tax Digital rules.
- At the moment, only VAT registered businesses are legally required to be MTD ready.
- Charities and non-profits will be exempt from MTD.
- Those who cannot used digital software due to reasons such as disability, remoteness, age or religion are exempt from MTD.
How do I prepare for Making Tax Digital?
If you are VAT registered and you are not Making Tax Digital ready, you might want to speak to an accountant. With the deadline fast approaching, you may some assistance in getting set up. Once you’re set up, both you and your accountant will have access to your digital account
What are the benefits of Making Tax Digital for VAT registered businesses?
1. Streamlined processes
The HMRC website is not renowned for its simplicity. With MTD, you can choose a software or accountancy package that makes sense to you!
2. Less paperwork
We’re all here for the environment, and the state of our desks. With MTD, you’ll no longer be drowning in paperwork.
3. Fewer tax mistakes
With potentially costly penalties, making tax mistakes is something everyone wants to avoid. With an automated system, all you have to do is check the data. HMRC also says avoidable tax mistakes cost the Exchequer more than £8 billion a year, with £3.5 billion of revenue lost because of VAT-return mistakes alone!
Knowing your numbers is a powerful asset to any business. Digital systems allow you to pull reports and examine processes at the click of a button! You’ll easily be able to assess areas of your business and make necessary adjustments.
5. Anytime access
Most MTD software’s have app capabilities and all are available 24/7. No more surprises and no more waiting for the bank to open!
If you’re still concerned about Making Tax Digital, and how it might affect you – check out Making Tax Digital: how VAT businesses and other VAT entities can get ready or get in touch today.
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