If you’re a business owner, you probably already know about and (we hope) are fully prepared for the Making Tax Digital (MTD) deadline. But just for a bit of background, the move to modernise and consequently transform the UK tax system was initially announced in the government’s spring 2015 Budget with a goal to have a new system in place by 2020. This announcement was then pushed into action, with HMRC announcing in July 2017 that the deadline for all VAT-registered businesses with a turnover above £85,000 would be 1 April 2019. However, if you are one of the 3.5% of large businesses with complex requirements, a trust or an unincorporated not-for-profit organisation, you have a 6-month reprieve, with MTD, deferred to 1 Oct 2019.
Change is disruptive and nobody really likes it at first, but at Buzzacott we view this change positively and have always encouraged our clients to get on board as early as possible. For most companies, accounting is filed once a year to comply with legislation but with the digitalisation of tax affairs, businesses will be able to do more with their finances. With this in mind, we see three key benefits:
- As information will be in one centralised place, your tax affairs will become more transparent between businesses, banks, accountants, business advisors and also the government.
- Businesses will have up-to-date access to tax information, so they will have an earlier and clearer idea of how much they will need to pay and how to budget.
- With tax moving online, communicating with HMRC will be easier.
How will it affect businesses and how should I prepare for the change?
So practically, what does this mean for businesses? Firstly all affected businesses will be issued with a digital tax account. This will enable businesses and accountants to submit VAT returns to HMRC through the new portal. So the question is what will change?
Essentially, not much, the large names in cloud accounting software, Xero, Quickbooks and Sage have already tailored their software to be Making Tax Digital (MTD) compatible. So other than your new digital account ‘it is business as usual’ if you’re using these packages.
However, for businesses still using desktop software, keeping their accounting records and/or finalising their returns in Excel, there will be changes. Businesses will now be required to use bridging software between Excel and the HMRC to submit their return.
It is also important to note the requirement to store digital records (on a transaction level). Although, this does not mean that businesses have to store invoices and receipts digitally yet, this makes sense from a business efficiency perspective, and is definitely the way forward.
How are we working with clients?
Every client has unique circumstances, so we believe in a tailored solution to fit your needs. MTD will present a challenge for some businesses and less so for others. For those of our clients open to the cloud, we have migrated their accounts over to cloud accounting software. However, cloud accounting is not a requirement to be MTD compliant; but another option in reporting, access, and storage of accounting records.
Although the move to cloud is now looking like an inevitability in our digital age, Buzzacott have developed a bridging solution for clients that still want to submit their returns using traditional accounting software or even straight from an Excel spreadsheet. Our software solution is very easy to use and will allow our clients to link directly to HMRC to file returns at a touch of a button.
What’s the future of tax?
As mentioned, VAT is the tax in the line of fire regarding MTD and everyone is well aware of the well published pilot schemes ahead of the April 2019 implementation date. However, the roadmap is yet incomplete for the roll-out to other taxes, with income tax and corporation tax not expected until 2020.
When corporation taxation follows, there will be a paradigm shift in the return process. It is suggested that filings will become quarterly as opposed to the traditional annual return. This will enable small businesses to stay up to date with taxes due and not have any surprises at the year-end, therefore helping them to manage their cash flow more effectively.
So, what is the eventual end-game? Step by step HMRC is building the most technically advanced global tax system, which will involve real-time reporting and lead to complete visibility of transactions.
In conclusion, clients face numerous challenges throughout the life-cycle of their business but MTD is a step forward in an increasingly digitised world and will result in a more efficient tax system, which will benefit us all.
Article taken from issue 7 of Beyond the Numbers