What you need to know about Making Tax Digital
Making Tax Digital (MTD) is the latest brainwave from the Treasury, and is going to impact pretty much every business in the UK.
We are finally beginning to get some detail fleshed out on the bones of this tax announcement, originally made in the 2015 Budget. We accountants have been pouring over the responses to the consultation process that has been taking place. So what is the digital tax revolution all about?
Making Tax Digital requirements
- All businesses with sales of more than £10,000 will be required to maintain their accounting records in a digital format, so out the window with those manual records.
- In what has been termed ‘the end of the tax return’, not only will there be a requirement to complete an annual return but also quarterly returns with varying levels of detail depending on the size of the business.
- This means that not only will your records need to be in a digital format but they will need to be up to date, at least on a quarterly basis. They will have to be in sufficient detail and accuracy that you will be able - and perhaps more importantly be happy – to complete a return to HMRC.
This truly sounds the end of bringing a box of receipts to your accountant at the year end. All businesses will need to either maintain those records themselves or ask their accountant or bookkeeper to keep those digital records up to date.
It is understood that spreadsheets will be an acceptable method, but of course they do need to be accurate enough to produce the necessary quarterly reporting. HMRC states that free software will be made available for the smallest of businesses with the simplest affairs but it is unclear at this stage how comprehensive that will be.
It is likely that this is going to force more small businesses to move over to cloud-based bookkeeping systems as they try to balance the additional cost of maintaining their records to the required standard (read more on cloud bookkeeping here)
Many businesses, whether they currently use digital methods of bookkeeping or not, will have to significantly change their current processes to comply. Especially those that are below the VAT threshold and have not had to deal with any form of quarterly reporting before.
When is all this happening? Well, not as far away as you might think. The current plan is that Making Tax Digital will apply from April 2018 – yes, just 12 months away. In a concession HMRC has announced that businesses below the VAT threshold will have a further 12 months to comply (April 2019).
However, this change is starting with sole traders and limited companies will follow on afterwards.
Of course all businesses should have accurate and up-to-date accounting records already, to provide good information for business decision making. Unfortunately, it is still all too common for business owners to ‘learn to their surprise’ about the results for the year when they sit down with their accountant 6 months after the year end!
Perhaps MTD will have a positive impact on businesses. There is so much information for making better, more informed business decisions hidden away in the accounts systems of small businesses.
Too many business owners see the bookkeeping as just a cost necessary to keep the taxman happy. This new requirement may be the catalyst needed to push that information into the light. Perhaps it will get business owners to seek some value from the extra work that undoubtedly will be required.
If you are worried about getting compliant with new digital requirements, want assistance with your bookkeeping or need more information to make better business decisions then Altus is here to help. Contact us here