As one of the biggest changes the accounting industry will witness in the next few years, it’s no surprise that Making Tax Digital (MTD) is a prominent topic people are talking – and worrying – about. This is not least the case for many small businesses that lack the resources to feel confident with the change to their accounting systems.
However, MTD doesn’t need to be a concern. Here, we explain the impact it’ll have on SMEs, and how they can guarantee compliance.
The basic premise of Making Tax Digital is that it’ll be mandatory to record and file your tax information electronically. Some already do this, employing bookkeeping software or inputting their figures via the HMRC website. However, the latter process will no longer be allowed come MTD’s roll-out date.
After this date, returns in a paper format will also be rejected. However, if this is the only way to file your taxes because you live in a remote location that struggles with internet connection, then you may apply for exemption. You can also do so for other reasons that fall under ‘impracticality’, such as age or disability.
Additionally, you could potentially be excluded from filing your tax digitally depending on how much your business earns. Those below the current VAT threshold (£85,000 in 2019/20) will not be legally required to submit under MTD for VAT, even if they have voluntarily registered for VAT.
Companies with a turnover below this threshold, but more than £10,000, will still have to digitally submit their Income and, if applicable, Corporation Tax, when these initiatives eventually come into force – though unincorporated businesses will have an additional 12 months to prepare.
If your business’ taxable turnover is under £10,000, and you’re not incorporated, then you will be excluded from needing to file electronically.
If you aren’t exempt from MTD for Income or Corporation Tax, then you can expect to digitally submit these returns in April 2020 at the very earliest. Whilst there hasn’t been any speculation about either being deferred, the launch date isn’t yet confirmed.
Once in place, you’ll need to file every quarter rather than annually. This will require additional administration work, on top of the cost of employing accounting software. For VAT returns, these will remain quarterly, meaning the only aspect of the process that is changing come the 1st April 2019 roll-out date is how you submit them.
The date for VAT’s digitalisation may not apply to your business – it may be slightly later, depending on when your next quarterly accounting period starts. If your current one began on 1st March 2019, for example, then you would wait until 1st June 2019 to file via MTD software.
If you do need to digitalise your taxes, then you should make sure you’re fully compliant. This includes the software package you choose. The easy way to do this is by checking if the provider is on HMRC’s approved list of suppliers. It’s also ideal if the tools integrate with small business accounting software and allow data from spreadsheets to be transferred – just like Liquid’s VAT Filer.
On top of these features, if your small business moves on to its next stage of growth, the Filer can do so too with multi-company and multi-user add-ons.
To get your small business’ accounting systems prepared for Making Tax Digital, get in touch with us by calling 0161 413 5050 or emailing firstname.lastname@example.org.