in Sage February 18, 2019
Is your business ready for ‘Making Tax Digital’?
By Alastair Thom
What is Making Tax Digital (MTD)?
From 1 April 2019, under MTD, around 1 million businesses registered for VAT with a taxable turnover above £85,000 will need to keep their VAT records digitally and file their returns using compatible accounting software.
Under the proposals, every business, charity and individual will have a digital tax account, bringing together each taxpayer’s details in one place. Information will be automatically uploaded to the account by banks, pension providers and government departments. Most businesses will be required to keep their records in a digital format and submit them to HMRC using MTD compliant software on a quarterly basis.
Businesses with ‘more complex VAT requirements’ may qualify for a deferral until October. If your business has requirements to either enter a return for a VAT group, rather than just a single entity; or has partial exemption calculations in your return – then the chances are you’ll qualify for the deferral.
The Making Tax Digital Timeline
- April 2018: MTD for VAT pilot began.
- April 2019: MTD for VAT starts. All VAT-registered UK businesses with turnover above £85,000 are required to keep records digitally and submit VAT Returns using MTD compliant software, such as Sage 200.
- October 2019: MTD for VAT for businesses with complex VAT requirements.
- April 2020: MTD for income tax and corporation tax will commence.
Depending on your organisation, tax submissions can be monthly or quarterly, so you may have a little extra time to get the right processes in place. Having said that, what businesses should be thinking about now is what software can help you to stay compliant with VAT registration requirements.
What do you need to do to get ready?
At present 99% of VAT Returns are filed online with HMRC. However only 15% of those are filed directly through accounting software. Under the new system, manually entering your VAT figures into the existing HMRC portal will not be possible.
There are several major players in the accounting software market working closely with HMRC to have their MTD functionality ready for April 2019, including Sage.
If your business is already using accounting software, then you should check that your software provider will be upgrading their products to make them MTD compatible. For a business already using Sage, this could involve having to upgrade to a requirement to upgrade to a supported version of Sage in order to access MTD compliant software.
What opportunity will it bring for my business?
While it will undoubtedly create some short-term challenges for businesses, MTD will also bring significant benefits in the longer-term, including accurate and up-to-date information to inform better business decisions. There will be a greater understanding of tax liabilities, which should eliminate any nasty surprises.
It will integrate systems and enable businesses to generate and send updates directly from their software to HMRC, starting with VAT. With tax data now being required every three months instead of annually, you’ll be much more aware of your numbers and gain a better understanding of your business thanks to regular analysis.
A modern tax system will make it easier for businesses to comply – but it will also take time to adjust to the new process. Our advice for all VAT-registered businesses with turnover above £85,000 is to start preparations early and move to an MTD compliant platform (like Sage) as quickly as possible, before the changes come into force from April 2019.
Businesses should also keep in mind that upgrading to MTD compliant software may also require other system software or hardware upgrades, which should be factored into plans.
If you have questions about Making Tax Digital and want a one-to-one with a member of our trusted team, we will ensure you have the information and advice you need to understand the software required to manage MTD for your business.
As a leading software solutions provider in Scotland, TMS can facilitate the transition to your new accounting package and provide the training, local support, knowledge and confidence you need to succeed with your new (MTD compliant) software.