I’m A Small Business – How Will Making Tax Digital (MTD) Affect Me?
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As we entered a new tax year, we also welcomed Making Tax Digital (MTD) for VAT, which was poised to overhaul everything we know about submission and account management. While many of the developments are welcome, adapting to the changes and making use of new accounting software has been a real concern for some.
However, with some foresight and specific accounting software, your business won’t suffer at all.
One of the most important factors to be aware of is that MTD is currently only necessary for businesses over the VAT threshold – currently £85,000 per annum. Freelancers, contractors and smaller companies under the threshold can opt in to MTD when they want to – but at the moment it isn’t a requirement. Even those businesses who are affected in the first year of MTD (2019/20) only need to submit their VAT reports online, not their taxable income.
Eventually every incorporated business earning more than £10,000 will have to use MTD for Income and Corporation Tax. But the roll-out date for this has yet to be confirmed.
HMRC has promised an MTD for VAT “soft landing” for the introductory period. This means mistakes or missed deadlines won’t be penalised as harshly for the initial 12 months.
If you are required to submit your VAT digitally, then you’ll experience a number of benefits, including more accurate payments, retained information within HMRC, and faster submissions. MTD is intended to boost efficiency and compliance. However, accounting software is more vital than ever to keep track of earnings, expenses and tax rates.
Your accounting software will organise your financial information and prepare it into a VAT return. You can also enter data whenever you want and track it, meaning you’ll have more control over your information too.
The inaugural VAT payment deadline will depend on your VAT period. If it starts from 1st April, then you will need to pay your VAT bill on the 7th August 2019. You will be required to keep your records digitally from the very beginning of your accounting period.
Businesses that have what HMRC consider “more complex requirements” have an additional six months (until the 1st October 2019) to start keeping digital VAT records and using MTD-compatible software to file their returns. The list of business categories this applies to can be found on the government’s website.
When MTD is rolled out across other taxes, you will have to declare Income, Corporation and Capital Gains Tax every quarter, instead of once a year. Payments are still made in January and July, but quarterly updates are designed to make those payments more precise.
A suitable small business accounting software is required. This will ensure accurate calculations are made. For now, HMRC have eased the process by allowing businesses to submit their VAT return with the use of spreadsheets. However, the data should then be transferred via bridging software. You’ll need to select a small business accounting software from HMRC’s list of approved suppliers to ensure it’s compatible.
We have already designed Liquid’s VAT Filer with MTD in mind. Transfer spreadsheet data in an instant, and send it off with full confidence, error-free, before the deadlines hit.
There’s much more to say about Making Tax Digital – we’re available for a call on 0161 413 5050 or via email at info@liquidaccounts.com should you need any assistance.