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Introducing Making Tax Digital
Making Tax Digital (or MTD for short) will be the biggest shake-up of the tax system in the UK for many years. HMRC states that the main goal of MTD is to make tax administration more effective, more efficient and simpler for tax payers; and their ambition is to become one of the most digitally-advanced tax administrations in the world.
The first tax that will be affected by these changes will be VAT, rolling out to other taxes in the future. If you are VAT registered you will need to file your VAT returns through software for VAT quarters starting on or after the 1st April 2019.
So yes, HMRC are forcing VAT registered businesses like you to start using software if you’re not already, but I promise there are many advantages to your business by using software, and you’ll soon wonder why you haven’t already made the switch!
So first of all, MTD will make returns more accurate, providing fewer opportunities for errors and miscalculations. How many times do you lose or forget about a receipt, therefore you don’t include on your VAT return and miss out claiming the VAT back? How many times does the formulae in a spreadsheet go wrong and potentially miscalculate? Using software, and the associated processes, will ensure that these sorts of errors do not happen, making sure you claim for everything you should, and your return is correct every time.
Software will also make the returns, and therefore your life, much easier to complete and ensure they are filed on time. Using software like Xero you’ll have a bank feed set up, so all the transactions will flow into your software, meaning you don’t miss an expense, and you can easily update your software, and prepare your VAT return quickly and easily. No more faffing around! Moving to a digital system will help to automate some of the boring stuff, and will make everything much quicker, saving you valuable time.
Moving over to software will mean you are able to keep on top of your finances much easier and will make the whole process much more manageable. Keeping on top of your finances will also mean up to date records, allowing you to plan strategically, make better decisions for your business and be more aware of your tax liabilities – and potentially even lower your tax bill as you’re able to make more decisions near year-end that could lower your tax (i.e. buying that new shiny laptop or paying a lump sum into your pension) that you can’t do once the year ends!
So yes, I know what you’re going to say – software is going to cost a fortune, it’s another cost you don’t need. However, there are plenty of options available to you, from ‘FREE’ upwards. You shouldn’t need to spend more than around £300 per year max for MTD compliant software (and if you are then have a chat with us to reduce this!). When you think of the time, and potential fines from errors/late filing, then this small cost is a no brainer in my opinion. The benefits of software far outweigh the cost.
If this is the first you’ve heard about MTD and you’re VAT registered please don’t panic. There is still time to get sorted so you are compliant. HMRC know it will take businesses time to switch over and become familiar with the new rules, so they will be lenient in the first year for businesses who are doing their best to comply with these changes.
If you’re not already on software then now is the time to speak to your accountant, or any accountant, and they can help you move over to some compliant software. If you are already on software, then just check with either your accountant or software provider that your software is compliant and if there is anything you need to do in preparation for your first MTD VAT return.
If you’re interested in having a look at Xero and working with a fully digital accountancy practice then please do have a look at our website: www.chaccountancy.co.uk, and complete the enquiry form on our Work With Us page.
Remember – don’t panic, this is a good thing for your business!
Cheryl Price ACCA
If your business needs an introduction to the digital world, Wendy Jennings Creative can help with your website content, online profile and other marketing strategies to get you noticed. Contact us today at hello@wendyjenningscreative.co.uk or call 07970 183487