Top Tips for Making Tax Digital
11th December 2018, 5:22 pm
Making Tax Digital (MTD) has become a hot topic of conversation as we edge ever closer to its April 2019 start date. However, in a recent study, we identified that only one third of the 500 SMEs surveyed have upgraded their software to ensure they are ready for the change.
Although there are only four months to go until the April 2019 deadline, you still have time to make sure your business is ready. Below we have set out some top tips that can help you on your journey to making your tax digital.
- Know your dates
There are different implementation dates for different types of businesses. Below we have highlighted the key dates you need to know:
- 1st April 2019 – MTD becomes mandatory for all VAT registered businesses with a turnover above the VAT threshold (£85,000), apart from certain businesses which have been deferred as per HMRC’s website.
- 1st October 2019- MTD becomes mandatory for all those who were deferred.
- April 2020+- Following the successful rollout of MTD for VAT a date will be confirmed for income and corporation tax compliance.
- Understand the benefits
There are many benefits that individuals and businesses can gain from MTD;
- Businesses will be able to clearly see their data ensuring it is up-to-date and accurate. HMRC will then be able to use the information to tailor their service to their individual customer’s situation.
- Businesses will not have to wait to year end to find out the amount of tax they may owe. HMRC will gather and process information as close to real time as possible.
- By 2020, businesses will be able to see one single financial account of their liabilities and entitlements to give a more comprehensive picture.
- Businesses will be able to interact digitally with HMRC at a time which suits them best.
- Be aware of the exemptions
There are a few reasons businesses may be exempt from MTD;
- The requirements may go against religious beliefs (e.g. the use of computers)
- The business is insolvent
- It may not be reasonably practicable to use digital tools such as age, disability, location
- Follow the key steps
To ensure you are ready for MTD, key steps to follow are;
- Ensure you have compatible software
- Identify the procedures you may need to modify for example how you are submitting to HMRC’s online gateway (excel or paper?) and will the software you currently use allow you to submit to the gateway?
- Monitor your tax liabilities and payments
- Speak with an advisor who understands digital technology
- Make a note!
Make sure you record and keep specific VAT information on your business, sales and purchases;
- Business name
- The address of your core location
- VAT registration number
- An account of any VAT accounting systems used
For each sale made:
- Time and value of each sale
- The VAT rate charged
For each purchase:
- Time and value of each purchase including VAT which you cannot claim back
- The total VAT claimed
Your VAT account should include;
- Output VAT due on sales and acquisitions from other EU countries
- The VAT due on behalf of your supplier under a “reverse charge” process
- The VAT that needs paid or reclaimed following an amendment
- The VAT claimable from business purchases and on acquisitions from other EU member states
- Any other additional amendments required by VAT rules
- Look into bridging software
If you are not currently using compatible MTD software or your processes are slightly more complicated, you should consider using bridging software. This allows relevant data to be digitally exchanged from a spreadsheet directly to HMRC.
But, this is not a complete solution;
· You still need to store digital records and a bridging software doesn’t allow this
· You still need to digitally link all accounting applications to complete a digital journey, from the data entered through to the VAT return. Bridging software does not help with this.
- Understand key terms
Terms such as ‘API’ and ‘digital link’ are frequently used around MTD and so it is important you understand what they mean and why they are important.
A digital link is important because you won’t be allowed to copy and paste information between programmes or within VAT return working papers. So, if you use more than one platform, they will need to have a digital link, which allows the digital and automated transfer of data.
API is used by HMRC to explain how software packages will link to their systems for MTD. It stands for ‘Application Programming Interface’ and describes how software platforms connect to each other and transfer data. It’s important to be aware of because all MTD-compatible software will use HMRC’s API.
- Know the cost involved
There are a variety of providers who offer software on a subscription basis and can tailor the packages to suit your organisation.
When considering the cost, it is good to keep in mind the long-term efficiency advantages of doing so;
- The prevention of late filing
- The avoidance of errors
- Time and efficiency savings
- Be aware of the penalties if you fail to comply
There will be a penalty if you fail to fulfil MTD requirements. The system for how penalties will work is currently under review. However, we know it will work on a point-based system where if you receive a certain amount of points, a monetary charge will be incurred.
- Stay ahead of the game
The earlier you can start to move your business records to a digital platform, the easier it will be to plan and manage come April.
You should also look at the other taxes which will go digital in 2020 and what they will involve (income and corporation). HMRC’s goal is to become one of the most digitally advanced tax administrations in the world.
This means modernisation of the tax system will continue. We can help you through the digitisation tax journey to ensure the transition for you and your business is as smooth as possible, please don’t hesitate to get in touch with email@example.com.